Central banks around the world have been buying nearly $2.4 billion in financial assets every hour for the past two months, data from Bank of America suggested Friday, driving risk markets higher even as economies suffer unprecedented damage from the coronavirus pandemic.
The bank's weekly Flow Show report notes that around $4 trillion in financial assets -- from government and agency bonds to corporate and mortgage debt -- have been hoovered up central banks from Tokyo to Washington, helping drive a $15 trillion surge in global equity market value over the past two months.
That surge, however, belies the fact that nearly 75% of the world's 3042 globally listed stocks are trading in the bear market territory (or 20% below their recent peak) and that "policymakers causing "immoral hazard", forcing investors to buy, banks to lend, corporate zombies to issue in 2020."
"Government and corporate bond prices have been fixed by central banks," Flow Show analysts wrote. "Why would anyone expect stocks to price rationally?"
Some $17.8 billion has found its way into bond markets over the past week, the biggest move in more than three months, while some $3.5 billion has been invested into gold, the second largest on record.
Earlier this week, BofA's closely-watched Fund Managers' Survey, which polled more than 190 investors controlling nearly $600 billion in assets, noted that the 'tail risk' of the second wave of coronavirus infections could cancel hopes of a V-shaped economic recovery.
More than two-thirds of respondents said the current market upturn, which has lifted the S&P 500 some 30% from its late March trough, is a 'bear market rally" that is unlikely to hold, the highest level of pessimism recorded in the survey since December 2007.
Recovery hopes are also looking bleak, the survey indicated, with most investors betting that global PMI data won't reach the 50 mark that separates growth from contraction until at least November, putting the chances of a V-shaped rebound at just 10%.
Corporate earnings, Friday's Flow Show indicated, are more likely to surprise to the downside next year than in 2020, "as policymakers to demand payback via taxes, tariffs, regulation; the possibility of negative US rates" that will pressure bank dividends in particular.
However, the average bear market rally, the Flow Show report noted, typically lifts stocks 61% from their recent lows (following an average decline of 49%) putting a level of 3,180 points for the S&P 500 firmly in the frame.