By Senad Karaahmetovic
Bank of America clients were selling stocks last week, marking the first week of selling after seven weeks of buying. Clients were selling single stocks, which ultimately offset ETF inflows.
Institutional clients led the selling activity while private clients joined for the first time in five weeks. On the other hand, hedge funds were net buyers for the second week. Mid-caps and small caps were sold last week with the outflow from the former the fourth largest since 2008. Conversely, large caps were bought for the fourth straight week.
When it comes to sectors, the selling activity was the largest in Financials, which saw the largest outflow in 7 months. Consumer Discretionary and Real Estate also witnessed large outflows while Tech and Communication Services were the only sector to attract inflows.
“Overall, we have seen a shift out of cyclical sectors and into defensive sectors the last two months. But even bigger than defensive inflows have been inflows into TMT (Tech + Communication Services; chart below). But we see risk that “Tech” isn’t as defensive as some investors perceive, with fundamentals weakening and interest rates continuing to trend higher,” strategists said in a client note.
In the meantime, the Bank of America’s Sell Side Indicator (SSI) continues to edge closer to a Buy signal. The indicator, which tracks the average recommended allocation to stocks by US sell-side strategists, dropped 78bps to 52.8% in October, the lowest level since early 2017.
“The SSI is one of five inputs into our year-end S&P 500 target of 3600, and indicates an expected price return of +16% over the next 12 months or ~4500 for the S&P 500. Historically, when the SSI was at current levels or lower, subsequent 12m S&P 500 returns were positive 94% of the time (vs. 82% over the full history) and the median 12m return was 22%,” strategists wrote to clients in a separate note.