Bank of America clients continue to buy S&P 500 despite rates concerns

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Bank of America’s client records show that investors continue to add exposure to stocks, resulting in the 9th consecutive week of equity inflows.

Despite a slight decline in the S&P 500 (-0.7%), clients were net buyers of U.S. equities, totaling $2.4 billion in inflows. These inflows were primarily directed towards individual stocks, although clients also showed a net interest in ETFs.

All client categories, including retail, hedge funds, and institutional clients, displayed net buying behavior. Retail clients witnessed a second consecutive week of inflows, while hedge funds and institutional clients returned as net buyers after a selling week.

BofA clients demonstrated a preference for large and mid-cap stocks over small caps for the second week in a row. Small-cap stocks, which experienced significant outflows in the first half of the year, have now seen inflows in 12 of the last 14 weeks.

“We see more room for a small cap catch-up rally,” BofA strategists wrote in a note.

In terms of sector allocation, industrials led the inflows, marking their first week of positive inflows in four weeks and the largest inflows since March 2022. Communication services and consumer discretionary sectors also attracted client interest.

The consumer discretionary sector has consistently seen inflows in seven of the last eight weeks, prompting an upgrade to an Overweight rating in August. On the other hand, the energy sector experienced the largest outflows for the second consecutive week.

“Cyclicals have seen more positive flows than defensive sectors since early Aug. We became more positive on cyclicals this spring, and our sector views have a cyclical tilt,” the strategists concluded.

On the ETF front, the majority of sector ETFs saw outflows, led by Staples ETFs, while Energy ETFs led inflows.