Get ready for retail tax loss selling

By Senad Karaahmetovic

Bank of America strategists urged the bank’s clients to prepare for volatility in December as this month typically sees peak outflows from retail clients.

Individual traders face the December 31 deadline to realize capital gains/losses. The strategists note that the bank’s records show increased retail activity this month, which should only accelerate in December. This is especially valid for outflows, they wrote in a client note.

Last week, BofA’s clients were big net buyers of U.S. stocks (+$3.3 billion). Private clients were sellers for a fourth consecutive week, likely due to tax filing season, while hedge funds were also sellers. On the other hand, institutional clients were buying U.S. stocks.

At a sector level, BofA’s clients were buying in stocks in four out of 11 sectors, led by Communication Services and Financials. Tech and Health Care also attracted inflows while Industrials and Energy witnessed outflows.

“These two sectors continue to have the longest selling streaks based on less-volatile rolling four-week avg. flows, with outflows since late May and late August, respectively. Meanwhile, Tech and Comm. Services have seen rolling four-week avg. inflows for most of the period since July. But we see risks to both Tech and Comm. Services, and are underweight both,” the strategists said in a client note.

Overall, the last week confirmed recent trends where traders are buying TMT (Technology, Media, and Telecom) stocks and selling Energy and Industrials.