Evening Brief – 02.05.24
Record Pace
In the final week of January, institutional investors withdrew at a record pace from the U.S. equity markets, indicating that the market may be nearing a short-term peak.
According to the most recent BofA Securities and Equity Client Flow Trends report, institutional clients, which include mutual funds, pension funds, insurance companies, and banks, contributed to the second-biggest outflow in data history, which began in 2008, and the largest since 2015. The largest outflows came from the technology, securities and staples sectors.
“Clients were net sellers of U.S. equities for the first time in three weeks,” reported Bank of America. The banks’ analysts Jill Carey Hall, Nicolas Woods, and Savita Subramanian highlighted that institutional clients largely fueled the selling.
Not everyone was rushing to the exit, however. At the same time as institutions were selling, BofA’s private clients, primarily high net worth individuals, and hedge funds were purchasing stocks, the report noted.
However, equity bears were in control, and adding across the three groups reveals that BofA clients were net sellers of US equities totaling $0.7 billion for the first time in three weeks. Clients sold individual equities for the first time in eight weeks, while purchasing equity ETFs for the first time in four weeks.
Additionally, despite the significant outflows, institutional clients’ outflows from stocks in January were consistent with what BofA’s has witnessed on average over the last five years.
Meanwhile, corporate buybacks have slowed but remain above average for the eleventh week in a row. Buybacks as a proportion of S&P 500 market capitalization (0.29%) are currently higher than in 2023 (0.26%).
While it is too early to say whether the outflow signals a more cautious approach to stocks, it does suggest that sentiment on equities is cooling following the S&P 500’s recent gains, according to Hall.
Other data indicate that some investors may be taking a break after the US benchmark rose 1.6% last month and reached an all-time high. BofA’s most recent sell-side indicator showed a strongly neutral result, indicating tepid sentiment toward stocks.