Bank of America Corp. says investors are rushing back into stocks and bonds, with signs that inflation has peaked spurring bets the Federal Reserve will dial back its interest-rate hikes soon enough to keep the US economy out of a recession.

Global equity funds pulled in US$7.1 billion in the week through Aug. 10, strategists led by Michael Hartnett wrote in a note, citing EPFR Global data. US stocks saw inflows of US$11 billion, the biggest in eight weeks. Rate-sensitive growth funds posted the largest influx since December, while financial stocks drew cash for a second straight week, marking a reversal after 18 weeks of outflows, the data show. Global bonds saw inflows of US$11.7 billion, while US$4.3 billion was pulled out of cash. 

A rally in US stocks gathered pace this week after US inflation data showed a slight cooling in consumer prices, increasing speculation that the Fed will slow the pace of what has been its most aggressive monetary policy tightening in decades. The S&P 500 Index is on course for its fourth straight weekly gain, its longest such winning streak since November.

Still, Bank of America’s own bull-and-bear indicator remains at “maximum bearish” for a ninth week in a row, the strategists wrote, though that’s often seen as a contrarian signal to buy.

Strategists have cautioned that it could still take time for consumer prices to fall back toward the Fed’s target and central bank officials stressed their fight against inflation would not be brief, suggesting the pressure on stock markets will remain. Citigroup Inc. strategists said this week that the rally was also at risk from highly optimistic analyst recommendations. 

The note from Bank of America showed outflows from European equity funds continued for a 26th week at US$4.8 billion. Although the benchmark Stoxx Europe 600 Index has bounced back since a low in June, the bank’s European strategists said the rally is likely to fizzle out in the absence of a pickup in economic growth.

In terms of equity flows by style factors, US large cap, small cap and value saw additions. Among sectors, consumer and technology saw the biggest inflows, while materials had the largest outflows.