No Full Capitulation on Wall Street Yet - Bank of America

October 4, 2022 7:04 AM EDT
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Bank of America strategist Jill Carey Hall noted that flows are getting more and more defensive after the S&P 500 hit a fresh year-to-end (YTD) low last week.

The index closed almost 3% lower last week, during which BofA’s clients were net buyers of U.S. equities for the fourth week. The buying activity was mostly concentrated on ETFs, which saw the biggest inflow since December. Excluding ETFs, BofA’s clients sold stocks for the first time in over a month.

Retail and hedge funds were net buyers of U.S. stocks while institutional clients were sellers. Nine sectors saw outflows, led by Health Care, Industrials, and Financials. On the other hand, only Communication Services and Tech witnessed inflows.

“While client flows had tilted cyclical>defensive for most of this year, we’ve seen the opposite trend since mid-August, with outflows from cyclicals vs. inflows into defensives most weeks, and bigger sales of cyclicals than defensives last week,” Carey Hall said in a client note.

Despite large selling, Carey Hall notes that net sales of single stocks by retail clients are still not extreme.

“Extreme sales by this group (-1 or -2 standard deviation events) have typically been a more consistent signal for near-term S&P 500 returns than when flows were at current levels, particularly -2 standard deviations, where subsequent 1mo. /3mo. S&P 500 returns were positive 78%/84% of the time (vs. 64%/71% for all weeks since 2008), with avg. 1mo./3mo. returns of 1.0%/5.1% (vs. 0.7%/2.1% for all weeks since 2008),” Carey Hall further added in a note.

Net-net, the strategist still doesn’t see signs of “full capitulation on Wall Street.”

By Senad Karaahmetovic

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