Bank of America: In the week when Trump threatened to impose additional tariffs, US stocks saw an outflow of $17 billion

The U.S. stock market has recently experienced significant capital outflows, reflecting the direct impact of geopolitical risks on investor sentiment. Amid President Trump's threats to impose tariffs on certain European countries over the Greenland issue, market risk aversion has intensified, leading to capital withdrawal from U.S. assets.

According to data from EPFR Global cited by Bank of America, U.S. equity funds suffered nearly $17 billion in net outflows in the week ending January 21. This data covers the market response period following Trump's tariff threats, highlighting the immediate impact of policy uncertainty on capital flows.

Meanwhile, there has been a clear divergence in capital flows, with European and Japanese markets becoming safe havens for funds. European equity funds have seen the strongest six-week inflow since June, while Japanese funds recorded the largest single-week capital increase since October. This cross-market capital rotation reflects investors' reallocation of assets globally to avoid risks associated with U.S. policy fluctuations.

Although the market subsequently stabilized and rebounded following the easing of tariff threats, the significant capital exodus has raised alarms. As the Federal Reserve is set to hold a meeting next week, the unpredictable U.S. decision-making process continues to exert pressure on the dollar, with market participants closely monitoring the potential disruptions to economic fundamentals from policy directions.

Rapid Switching and Repair of Market Sentiment

Bank of America noted in its report that this wave of capital outflow primarily occurred during Trump's hardline stance on European countries regarding the Greenland issue. Although this tension was later alleviated, EPFR Global's data captured the peak of investor anxiety at that time.

During those volatile days, Trump threatened to impose tariffs but later softened his rhetoric. According to Bloomberg, this shift occurred later in the week when NATO Secretary-General Mark Rutte facilitated a breakthrough at the World Economic Forum in Davos, prompting Trump to abandon his tariff threats.

Buoyed by this news, along with data showing that the U.S. economic fundamentals remain solid, the U.S. stock market subsequently recovered most of its losses for the week. Investors experienced a tumultuous ride triggered by policy reversals, quickly shifting from panic selling to reassessment.

However, despite the stock market rebound, the foreign exchange market continues to be affected by the ongoing unpredictability of U.S. policies. This uncertainty has become a significant factor suppressing the dollar's performance ahead of the crucial Federal Reserve meeting.

Overall Sentiment Remains Extremely Bullish

Despite some funds experiencing large-scale redemptions, the overall market sentiment has not undergone a fundamental reversal. The team of strategists at Bank of America, led by Michael Hartnett, noted in their report that the bank's "Bull-Bear Indicator" shows that the overall sentiment in the stock market remains in an "extremely" bullish state.

Hartnett pointed out that although the indicator has slightly retreated due to significant capital outflows, it indicates that the long-term bullish logic has not completely collapsed due to short-term policy disturbances, and investors are still seeking structural opportunities amid the volatility