Last week saw a continuation of equity inflows, with hedge funds leading the way in buying, according to Bank of America’s client flows.
The S&P 500 witnessed a gain of 2.5% during the week, with the bank’s clients being net buyers of U.S. equities for the fifth consecutive week, amounting to $1.5 billion in purchases.
While clients returned to buying single stocks after selling them the previous week, the majority of inflows were directed toward ETFs.
Hedge funds were the primary buyers last week, rebounding after selling the prior week. In contrast, institutional and retail clients were net sellers for the first time in four and two weeks, respectively. Among these three groups, only hedge funds have been cumulative net buyers year-to-date.
Small-cap stocks continued to gain momentum, with clients buying stocks across all three size segments, including mid-caps, which saw their first inflows since late June. Small-caps have experienced inflows for ten consecutive weeks after strong H1 selling.
“We see more room for a small cap catch-up rally,” commented BofA strategists.
In terms of sector-wise flows, clients invested in stocks from five of the 11 sectors, with Communication Services and Consumer Discretionary leading the way, both experiencing inflows for the last four weeks.
Conversely, Energy and Health Care witnessed the largest outflows, while Utilities had a four-week streak of selling.
Financials saw a change in trend as clients sold them for the first time since early July. On the other hand, Industrials experienced a reversal, with a less volatile four-week average of flows turning positive for the first time since early June.
Corporate buybacks remained subdued, slowing down last week and consistently tracking below seasonal trends since May. Year-to-date, corporate client buybacks as a percentage of S&P 500 market capitalization have been below the highs observed in 2022 at this time, the strategists noted.