In the first three months of the year, the technology sector experienced one of its highest quarterly inflows, totaling $18.6 billion. This trend continued over the past week, with significant investments also seen in cash and bonds, according to a report by Bank of America Global Research.
During the week leading up to Wednesday, money market funds, considered a cash equivalent, attracted $81.8 billion. This marked the largest influx in nearly three months, highlighting a strong preference for liquidity among investors, as per the latest global market flow data compiled by EPFR.
This surge in inflows into money market funds is attributed to the end-of-quarter financial activities, indicating a strategic move by investors to secure liquidity.
Moreover, the overall stock market saw inflows amounting to $14.2 billion within the same week, with the technology sector specifically drawing $1.1 billion. Bonds were also favored, receiving $13.4 billion, of which $9.7 billion was directed towards investment-grade corporate debt, Bank of America reported.
Notably, this data excludes the market activity on Thursday, which witnessed a decline of approximately 1% across the three major U.S. indices. This downturn was influenced by rising oil prices due to tensions in the Middle East, positioning the S&P 500 for its most significant weekly drop since October.
This weekly downturn contrasts sharply with the robust performance of U.S. stocks, especially tech stocks, during the first quarter. Their strong performance contributed to setting new record highs for major indices repeatedly.
Regarding cash flows, Bank of America observed that in the last five Federal Reserve rate-cutting cycles, investments in money market funds increased in anticipation of the initial rate cut. However, these inflows slowed significantly once the Fed commenced rate cuts, with outflows beginning about 12 months into the cycle.
The analysis further noted that cash, as a portion of assets under management, tends to decrease following rate cuts, as cash typically underperforms compared to other assets. Current market predictions suggest there is a roughly two-thirds probability of the Federal Reserve reducing rates by its June meeting, based on the CME's Fedwatch tool.
