Investor Flows Suggest Belief Market May Have Bottomed

By Senad Karaahmetovic 

Bank of America’s data for last week shows clients were buying stocks for the fifth consecutive week after the higher-than-expected data for September yielded a new low for the .

The bank’s clients were buying both stocks ($3.7 billion) and ETFs ($5 billion) with fixed income ETFs witnessing the biggest inflow ($3.5 billion) in nearly 6 years. Clients were buying stocks across 7 sectors, led by Tech and Communication Services. Energy stocks also saw the biggest inflow since August while Real Estate and Materials stocks saw the largest outflows.

“Big inflows in the last several weeks suggest that investors may believe that the market has bottomed. One risk: only 20% of our bull market signposts have been triggered vs. 80%+ at prior bear market lows,” BofA strategists wrote to clients in a note.

Private clients led buying, followed by institutional clients. Hedge funds for sellers last week after three consecutive weeks of inflows.

“Clients were big net buyers of stocks in foreign-exposed sectors for the second week vs. sellers of domestic sectors in aggregate. This earnings season, we expect the biggest headwind to y/y sales growth from FX since 2015 (-3ppt) and continue to see risk to large multinationals relative to domestics amid peak globalization,” the strategists added.

Elsewhere, Citi’s strategists discussed the latest investor positioning after investors added risk to U.S. equities late last week.

“This is a turn from recent weeks of bearish flows interspersed with profit-taking on shorts. In contrast, futures positioning in Nasdaq 100 continues to extend further bearish and with ETF outflows picking up,” the Citi strategists wrote in a note to clients.

In Europe, the net short positioning has extended as bearishness momentum continues to dominate recent flows. In the UK, the positioning has not turned marginally bearish after “the rapid unwind of long positions.”