FX: 45 billion dollar influx, short cover will continue to detonate US stocks?

As fears of an economic downturn recede,U.S. investors poured more money into the stock market in June than in any month since March 2022.

According to data from Bank of America (BofA),By the end of June, inflows into the stock market rose to $45 billionThe massive allocation to the stock market reversed the pattern of the previous six monthsOver the past six months,Investors have switched from stocks to bonds for fear of a potential economic downturn.

"While bond yields remain attractive, recession fears are easing," Bank of America strategists said.The S & P 500 index has risen 9% since the end of April, which is highly attractive to investorsIn June, 45 billion dollars flowed into equity funds or ETFs (exchange traded funds). "

The S & P 500 has surged 19% so far this year after a bad 2022, which is driving short covering in stocks.JPMorgan Chase and Goldman Sachs told clients in a report that global hedge funds were unwinding bets that US stocks would fall as continued gains threatened their performance.

Goldman Sachs said in a report on Friday that short covering of so-called U.S. macro products, including stock indexes and exchange-traded funds (ETFs), reached its highest level since November 2020.Such short covering could in turn drive stocks higher, further complicating the situation for the remaining short sellers.

For much of the past year, markets have been bracing for a recession as the Federal Reserve struggles to rein in high inflation by raising interest rates.

Inflation has fallen close to the Federal Reserve's 2 per cent long-term price target, but the US labour market remains strong, which could make a soft landing more likely. US house prices rose 3 per cent last month.After the June inflation report was released, the cooling inflation data drove the weekly inflow of $12 billion.

At the same time, investors expect the Federal Reserve to pause rate hikes or even start cutting rates soon, as inflation appears to be steadily declining. According to the CME's Fed Watch tool, the market expects the Fed to raise rates by 25 basis points in July, compared with an 86% chance of pausing in September.