By Senad Karaahmetovic
While the S&P 500 trades sharply lower this week again, the benchmark U.S. stock market index attracted large inflows last week when it rallied 1.5% off recent lows.
Bank of America's (NYSE:BAC) clients were big net buyers of U.S. equities last week ($6.1 billion), which marks the third largest inflow in their data history since 2008 and the fifth consecutive week of inflows. For BofA's equity strategists, the recent flows suggest more volatility is likely ahead.
The buying activity was concentrated around single stocks and ETFs, while the bank's clients were buying both large and mid caps while selling small caps for a second week. Institutional clients led buying in what the strategists say were the biggest inflows since December 2020.
As far as sectors are concerned, Tech, Communication Services (sixth week of inflows), and Consumer Discretionary saw the biggest inflows, while Utilities recorded outflows.
"We've highlighted that "Tech"/Growth may not be as defensive as some investors expect: Nasdaq earnings continue to weaken vs. S&P 500 earnings. Clients were bigger net buyers of cyclical sectors (in aggregate) than defensive sectors last week, more consistent with trends for much of this year vs. the more defensively-tilted flows we had seen most weeks since late August. Another reversal: clients were bigger net buyers of stocks in foreign-exposed sectors than domestic sectors; flows saw the opposite tilt most weeks since late Aug," the strategists wrote in a client note.
Ahead of the Q3 earnings season, strategists expect to witness the biggest headwind from FX since 2015.
Citi strategists weighed in on positioning to note continued bearish sentiment "across all markets and there are no signs of a turn yet."
"Profit levels are most extended in Nasdaq 100 positioning where profit taking may create further rebound days," the strategists told clients.
In Europe, Euro Stoxx 50 positioning remains the most bearish across markets, although the strategists note that "negative momentum has faded in recent weeks."