Investors are exhibiting signs of AI fatigue, as technology stocks experience their first downturn in nearly three months, as reported by Bank of America Global Research on Friday.
In the week ending Wednesday, investors redirected their investments towards cash, equities, and bonds while divesting from gold and emerging market equities.
Equity funds recorded $2.2 billion in inflows during the week ending September 6, according to data from EPFR, but technology stocks saw $1.7 billion in outflows, marking the first such occurrence in 11 weeks.
This year, global equities have surged, driven by mega-cap U.S. technology giants such as Microsoft and Nvidia, which have demonstrated their capacity to thrive amidst the AI boom.
However, the recent upswing in government bond yields due to a robust U.S. economy has prompted a pause in the market rally, with expectations for Federal Reserve rate cuts being pushed back.
According to BofA strategist Michael Hartnett, the prevailing investor sentiment can be summarized as a belief in a “soft landing,” but concerns about a potential “hard landing” persist among large asset managers.
Bank of America identified ongoing risks for risk assets in September and October, including sustained higher oil prices, a stronger U.S. dollar, rising yields, and tightening financial conditions.
While Brent crude reached its highest level at $90 a barrel on August 5th (and is currently at $89.12 USD as of September 8th, 3:43 AM EDT) since November, the dollar’s rise to March highs and its longest weekly winning streak in nine years is worth noting.
The report cautioned that any risk asset rally in the autumn, triggered by easing financial conditions or negative payrolls, would be an opportunity to sell.
In addition, there was a net inflow of $4 billion into bonds, coupled with a substantial $68.4 billion inflow into cash, marking its largest inflow in nine weeks.
Moreover, Bank of America’s “Bull & Bear indicator” declined to 4 from 4.4, driven by outflows in emerging market bonds and stocks, as well as narrowing equity market breadth.