By Senad Karaahmetovic
Despite the ongoing rally in U.S. equities with the S&P 500 up nearly 4% since last Monday (27/03), Bank of America’s clients were selling stocks.
Analysts at the firm highlight $3.2 billion of outflows from U.S. equities, marking the first net sale by the broker’s clients in five weeks. Investors were mostly selling single stocks, the analysts wrote in a regular weekly note on client flow trends.
“Clients sold equities across all three size segments (small/mid/large),” they said.
While hedge funds were net buyers of equities, institutional and retail clients led outflows. The biggest sales were recorded in the Communication Services sector, which marked the second biggest outflows since 2008. Similarly, clients were also selling Tech stocks.
“Energy stocks led inflows as oil prices rallied off lows, followed by Industrials and Materials. Materials continues to have the longest buying streak (last 10 weeks). Clients sold Financials stocks for the first time in five weeks; both hedge funds and private clients were sellers. Institutional clients were buyers for a second week,” the analysts added.
As far as the entire Q1 is concerned, BofA’s clients were buying single stocks and mostly those in the Tech sector. Not surprisingly, the data shows inflows have mainly been in large caps.
BofA analysts highlight that Nasdaq is now in a bull market after rallying nearly 21% in Q1 but they warn the broker’s clients against chasing rallies.
“We don’t think a lower risk-free rate alone is a strong reason to get bullish on equities, if it’s driven by a deteriorating growth outlook leading to a wider risk premium. Historically, a Fed easing cycle (i.e. lower 2-yr yield) combined with a credit tightening cycle (i.e. wider IG credit spread) has been the worst phase for equities. But broad pessimism on equities could be a big tailwind for stocks,” they said in a note.