- The gap between flows out of equity funds and into bond and cash funds is the widest since 2008, Goldman Sachs analysts wrote.
- The shift in allocation signals investors are selling stocks for stabler assets. The analysts cited decelerating economic growth and trade uncertainty for lowered risk appetites.
- The outflow trend will likely stabilize in 2020 and corporations will continue to prop up equity demand, Goldman said.
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Investors continue to flee stocks for bonds and cash as equities reach record highs and economic pressures mount, Goldman Sachs analysts said.
US equity funds saw net outflows of $173 billion in the past 12 months, according to Goldman. Bond and cash funds saw inflows of $259 billion and $592 billion, respectively. The 12-month flow gap from stocks to bonds and cash is the biggest since 2008, the analysts wrote.
- Goldman Sachs
“Decelerating US economic growth, trade and geopolitical uncertainty, and near-record high starting equity allocations have likely contributed to the rotation from equities to bonds and cash this year,” they said.
Investors’ appetite for risk appears to sit at a lower point compared to the year-ago period, Goldman noted. The S&P 500 reached a record high early Monday, and stock buyers may see the peak as the opportune time to cash out.
The outflow trend will likely persist through 2019 and stabilize in 2020, according to Goldman. Economic uncertainty will “likely limit a significant increase in equity allocations,” but positive stock returns and rising interest rates should stave off continued outflows, the analysts said.
Investors may not want to stomach the wild swings in stock prices, but corporations are poised to maintain their buying spree. A decline in IPO deals and an increase in cash acquisitions suggests corporations will lead the pack in equity demand next year, the analysts wrote.
Goldman expects corporate buybacks to prop up equity demand, but the bank’s analysts previously forecasted a steady decline in repurchases through 2020. The peak in buyback activity arrived in 2018 after the Trump administration’s tax cut fueled a wave of repurchase programs. Buybacks are projected to fall 15% in 2019, and drop another 5% in the following year, Goldman said.
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