Investing.com -- Bank of America (NYSE:BAC) strategists led by Michael Hartnett say the "Magnificent 7" stocks have now become the "Lagnificent 7," as the market cap of the group has fallen by $3 trillion to $15 trillion.
Meanwhile, China’s "Fab Four"—Baidu Inc (NASDAQ:BIDU), Alibaba (NYSE:BABA), Tencent Holdings Ltd (HK:0700), and Xiaomi (OTC:XIACF) Corp (HK:1810)—have doubled in value to $1.6 trillion, with European equities also catching up.
In the week to March 5, global fund flows showed a continued investor preference for cash, which saw inflows of $53.1 billion, while equities drew $22.9 billion, bonds $12 billion, and gold $1 billion, according to BofA’s latest report.
European equities saw their largest inflow since February 2022 at $4.1 billion, while emerging markets (EM) had their biggest inflow in three months at $2.4 billion. Tech stocks saw their first inflow in five weeks at $2.6 billion.
Gold had its largest four-week inflow on record at $9.9 billion, while crypto funds saw the biggest four-week outflow ever at $3.6 billion. Treasuries recorded their biggest outflow in 11 weeks at $1.2 billion.
In the note, Hartnett highlights a structural shift in global markets, stating that "whatever it takes" European rearmament will drive EU and UK fiscal expansion, while in the U.S., Elon Musk-led DOGE department’s actions are leading to “new fiscal austerity.”
“Stars [are] aligned for German bund yields to trade above US Treasury by year-end,” Hartnett adds.
The BofA strategists are long international stocks, particularly China and Europe, as “U.S. exceptionalism" appears to be peaking.
"The next equity trade is the ‘weak U.S. dollar’ trade," they said, adding that investors should "nibble at oversold U.S. semiconductors" and buy lagging Indian stocks.
Regionally, U.S. stocks saw their third consecutive week of inflows at $8.5 billion in the week to March 5, Europe had its fourth week of inflows at $4.1 billion, Japan recorded its second week of inflows at $3 billion, and EM stocks saw inflows resume at $2.4 billion.
In fixed income, investment-grade (IG) bonds attracted inflows for the 71st straight week at $9.7 billion, while high-yield (HY) bonds saw inflows for the seventh consecutive week at $2.4 billion.
However, Treasury funds saw renewed outflows amid concerns over fiscal tightening in the U.S.