BofA clients sold equities last week as buybacks slow

Bank of America clients were net sellers of U.S. equities last week, withdrawing $1.4 billion despite a 1.5% S&P 500 gain, primarily driven by institutional investors and hedge funds extending a cautious trend. This selling, which saw broad sector outflows (excluding commodity-linked sectors) and decelerating corporate buybacks, signals investor wariness amid elevated rates and valuations. However, strong net buying in ETFs, particularly by private clients and into mid-caps, suggests a nuanced sentiment beneath the overall professional de-risking.

Analysis

Bank of America client data reveals a significant divergence between market performance and investor positioning, with clients turning net sellers of U.S. equities to the tune of $1.4 billion despite a 1.5% gain in the S&P 500. This selling pressure was overwhelmingly led by institutional investors, who have now been net sellers in 11 of the past 12 weeks, and hedge funds, which resumed selling. This professional de-risking starkly contrasts with the persistent buying from private clients. Compounding this cautious signal, corporate buybacks decelerated for a fourth consecutive week, falling below seasonal norms, a trend BofA's strategist attributes to elevated interest rates and equity valuations, anticipating a potential shift toward dividends. Sector flows were broadly negative, with outflows from eight of the eleven S&P sectors. Notably, Technology and Communication Services saw the largest withdrawals, reversing prior inflows. In a significant counter-trend, commodity-linked sectors like Energy and Materials attracted capital, with Energy recording its first inflow in five weeks. While a strong bid was observed in the ETF space, inflows were targeted, with mid-caps being the only size segment to see net buying, while broad market ETFs experienced outflows, underscoring a selective rather than a broadly bullish sentiment.

Key Decisions for Investors

• Given the net outflows from institutional and hedge fund clients amid a rising market, consider a cautious stance as professional money appears to be taking profits or de-risking.
• Monitor for a potential rotation out of growth-oriented Technology and Communication Services stocks, which led outflows, and into commodity-linked sectors like Energy and Materials that are attracting new capital.
• Evaluate portfolio exposure to companies with high buyback yields, as the trend of decelerating share repurchases in favor of potential dividend increases could alter total return profiles.
• Note the specific inflows into mid-cap focused funds, which may signal a tactical opportunity or a search for value outside of large-cap and small-cap segments that saw net selling.