Investors Continue to Buy Dips in U.S. Equities

By Senad Karaahmetovic

Bank of America clients bought the last week’s rebound in U.S. equities, which resulted in the closing over 3.6% higher. This buying activity took place for the first time in four weeks, Bank of America’s data shows.

Hedge funds were buying the dip while inflows from institutional clients were the largest since early July. Retail clients were net sellers, which marks the second consecutive week of selling.

“Overall, flows this year corroborate our Sell Side Indicator which suggests lack of true bearish sentiment – cumulative inflows are on pace to exceed 2019’s record levels and clients have been buyers of stocks across all but two sectors (Health Care/Utilities) for the first time in our data history. Rolling 4-wk. avg. flows dipped negative only in April & June, but were not historically extreme,” an equity and quant strategist at BofA, wrote in a note.

Looking at the sectors, 9 out of 11 sectors saw inflows, led by Consumer Discretionary, Health Care and TMT (Tech/Communication Services), while Industrials and Real Estate were the only sectors to witness outflows.

“Clients were bigger net buyers of stocks in cyclical sectors than defensive sectors, a reversal from more defensive flows the prior three weeks,” the analyst added.

A Citi strategist also noted new long positions being made in the U.S. stock market.

“S&P 500 investors are profiting from this boost whereas Nasdaq positioning is in loss due to larger legacy short positions now in loss,” the analyst added.

The strategist also noted that positioning in the U.S. equities is near the 65th percentile, which means it is “rising but not extended.”