After a near record stretch of euphoria, in which the S&P rose in 12 of the past 13 weeks during what Goldman called one of the “most powerful short-cycle rallies we’ve ever seen“, the market’s relentless ascent is now in jeopardy and as of today, the current week is set for a modest drop (sparked thanks to Powell’s unabashedly hawkish presser yesterday), although that may well change depending on what AAPL, AMZN, and META report after the close.
However, one group of investors isn’t sticking around to find out which way the after-hours wind blows, and has quietly taken advantage of the relentless meltup to cash out: in the last week of January, institutional investors pulled out of US stocks at a record-breaking pace, signaling the top may be in for the market for the near future.
According to the latest BofA Securities and Equity Client Flow Trends report (available to pro subs in the usual place), institutional clients, which include mutual funds, pension funds, insurance companies, and banks, had their second-largest selling outflow in data history (since ‘08) and the largest since 2015. The cohort concentrated its selling in tech and consumer discretionary names ahead of this week’s slew of Big Tech earnings reports, which have so far been quite lackluster.
\Not everyone was downbeat however: at the same time as institutions were dumping, BofA’s private clients (i.e., high net worth individuals) and hedge funds were buyers.
That said, the bears dominated, and adding across the three groups reveals that BofA clients were net sellers of US equities (-$0.7B) for the first time in three weeks. Clients sold single stocks for the first time in eight weeks vs. bought equity ETFs for the first time in four weeks.
Also, despite last week’s big outflows, institutional clients’ outflows from stocks for the month of January were in-line with what BofA’s desk has seen on average over the last five years.
Elsewhere, while corporate buybacks decelerated they are still tracking above typical levels at this time for an eleventh week in a row. YTD, buybacks as a percentage of S&P 500 market cap (0.29%) are above ’23 highs (0.26%) at this time,
According to BofA’s Jill Carey Hall, while it’s too soon to tell whether the outflow indicates a more cautious stance toward stocks, it does hint that sentiment on equities is cooling after the S&P 500’s recent advances.
Other indicators suggest some investors may be taking a breather after the US benchmark advanced 1.6% last month and hit an all-time high. BofA’s most recent sell side indicator posted a strongly neutral reading — signaling somewhat tepid attitudes toward equities.
Meanwhile, as Bloomberg flags, the AAII bull-bear spread dropped to its lowest in two months, with individual investors increasingly noting that they are ‘neutral’ as opposed to bullish on the stock market’s prospects.
More in the full report available to pro subs.