MW Bank of America flags a really big risk to bonds - the stock market

By Steve Goldstein

Strategists say a weakening of rebalancing flows would eat away at a big source of demand

A stock market that sputters could be felt in the bond market.

After a pretty forgettable Super Bowl - even New England Patriots owner Robert Kraft was caught on camera yawning - there might be more fireworks in markets this week with payrolls, CPI and a bunch more earnings to come.

The stock market has been producing explosive gains these last few years, but as the Dow DJIA passes 50,000, the upward momentum could fizzle out a bit.

Cue an interesting piece of research from Bank of America rates strategists, led by Eleanor Xiao. They found the stock-market gains since 2021 produced big inflows into bonds, from investors rebalancing their portfolios to something like the so-called balanced portfolio with 60% in stocks and 40% in bonds.

For every $10 trillion in assets, portfolios sell down some $37 billion of equities a month, and buy $37 billion of fixed-income assets - U.S. Treasurys, corporates and mortgage-backed securities.

That sounds like a lot, and it is - some 14% of the U.S. Treasury and 22% of investment-grade supply since 2021, they calculate.

But the flows may slow. "Equity returns are expected to moderate sharply in 2026, with our U.S. Equity Strategy team forecasting just 4.5% price appreciation in the S&P 500. Our econ team expects the Fed to deliver only two cuts this year - conditions that together imply smaller and potentially weaker rebalancing flows into duration assets. As a result, one of the most reliable drivers of duration demand over the past five years may recede," they say.

The irony, however, is that those flows drying up may ultimately boost the argument for bonds in a balanced portfolio. That's because the rebalancing flows have in recent years driven up the correlation between stocks and bonds.

"A sputtering 60/40 rebalancing engine may allow for a more orthodox context for bond / equity correlations, and higher diversification and hedging benefits of long duration positions in portfolios," they say.

The market

U.S. stock futures (ES00) (NQ00) were drifting lower ahead of the open. Gold (GC00) rose, while bitcoin (BTCUSD) fell.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6932.3     -0.10%  -0.49%  1.27%   15.04% 
   Nasdaq Composite                                                     23,031.21  -1.84%  -2.70%  -0.91%  17.97% 
   10-year Treasury                                                     4.235      -4.40   5.30    6.30    -26.30 
   Gold                                                                 5017.7     7.19%   8.87%   15.82%  70.86% 
   Oil                                                                  63.79      2.34%   6.60%   11.11%  -11.98% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Heading into a key week of economic reports, Fed Gov. Christopher Waller is due to speak about digital assets, while Fed Gov. Stephen Miran will be speaking at a Boston University event.

Sanae Takaichi's party won Japan's election in a landslide, sending the Japanese stock market index soaring.

Hims & Hers stock $(HIMS)$ slumped after the company ended its plans to launch an oral version of Novo Nordisk's (NVO) Wegovy.

Kroger shares $(KR)$ are rising as the Wall Street Journal said it would name a former Walmart executive as its CEO.

InPost shares (NL:INPST) surged in Amsterdadm after a buyout group led by Advent International and FedEx $(FDX)$ agreed to buy the Dutch-listed Polish delivery company for $9.2 billion

The European Commission said it may take measures to prevent Meta Platforms' (META) WhatsApp from banning third-party general-purpose AI assistants.

Best of the web

The Chinese factory that opened in the U.S. and clobbered its rivals.

Why the NFL booked Bad Bunny for the Super Bowl.

The BDC Primer: What they are, how they work, and where they blow up

The chart

Analysts at Goldman Sachs estimate that there could be $120 billion worth of initial public offerings this year as big-name private companies weigh listings. It still would represent just 0.3% of the Russell 3000 RUA market cap, note strategists led by Ben Snider. While history shows that elevated IPO activity is associated with below-average subsequent returns, they find the historical periods of the most elevated IPO activity have coincided with broad market exuberance. Recent IPOs have lower valuations and higher profitability than the IPOs during those episodes, they say.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing Co. 
   AMZN    Amazon.com 
   AMD     Advanced Micro Devices 
   PLTR    Palantir Technologies 
   MU      Micron Technology 
   MSFT    Microsoft 
   NIO     Nio 

Random reads

Adweek gives their assessment of the best Super Bowl ads.

The march for billionaires drew a decidedly niche following.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 09, 2026 06:48 ET (11:48 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.