- Bank of America clients were net sellers of stocks for the fourth straight week.
- But while big-money investors ran for the door, retail clients were the most bullish in four months.
- Here are the only three sectors that saw net ETF inflows despite the bearish sentiment.
Wall Street hedge funds and institutional investors are getting anxious as stocks grind higher, and small-time retail investors are gladly buying the dip.
Money flowed out of stocks last week for the fourth straight week, and by a net $2 billion, according to Bank of America data released on July 19. Bank of America clients instead sought safety and flocked to fixed income via bonds, and they weren’t alone – US Treasury 10-Year Note yields sank to 1.3%.
Net sales of US stocks among Bank of America clients last week hit their highest level in five weeks, but strategists led by Jill Carey Hall noted a clear dichotomy between increasingly nervous big-money clients and retail investors emboldened to buy the dip.
“Selling was driven by institutional clients (largest in three months) and hedge funds clients (largest in two weeks) while retail clients were the largest buyers in four months,” Hall wrote.
Money flowed out of equity exchange-traded funds (ETFs) for the first time in about three months and at the highest rate since October, but money flowed into fixed-income ETFs at the largest rate in four weeks. Curiously, stocks saw weekly inflows for the first time in two months. Passive investing via ETFs and mutual funds instead of individual stocks is a multi-year trend.
Broad market ETFs were sold last week at the highest rate since mid-March, while growth ETFs outflows were the highest since mid-January, the note read. Money also left blend and value ETFs, though the latter saw decelerating outflows from the prior week.
Bank of America clients got bearish on ETFs in eight of 11 sectors, including growth-focused sectors like Consumer Discretionary, Health Care, and Technology.
The three sectors that saw weekly inflows were Energy, Materials, and Real Estate. All three are inflation beneficiaries that thrived as the consumer price index came in higher than expected.
Small and mid-sized (SMID) companies generally outperform their large-cap peers early in economic expansions when inflation runs hot, as is the case now. Bank of America reiterated its preference for SMIDs over large caps, and clients last week took the bank's advice.
"Clients bought last week's SMID cap laggards with record flows into mid-caps and the biggest inflows into small caps since October 2020 while selling large caps by the most since mid-January," Hall wrote.
Stocks in six of 11 sectors saw net inflows, including cyclical sectors like Energy, Industrials, and particularly Financials, which saw its largest inflows since March 2020 on the back of last week's strong bank earnings.
By contrast, Bank of America clients ditched growth sectors like Healthcare, Technology, and Communications Services, the latter of which suffered its 14th-largest outflow on record.