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Sept. 28, 2022, 9:42 a.m. EDT

Bank of America clients are buying the dip in U.S. stocks, shifting from cyclicals to defensive

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By Isabel Wang

In light of the recent U.S. stock market losses, Bank of America (BofA) saw more buying of equities among its clients during last week’s selloff, and there was a shift in who was buying and what they were buying. 

According to Jill Carey Hall, the equity and quant strategist at BofA Global Research, the bank’s clients were net buyers of over 0.5 billion dollars of equities last week, during which the S&P /zigman2/quotes/210599714/realtime SPX -0.19% fell 4.6% and the Dow /zigman2/quotes/210598065/realtime DJIA +0.0047% tumbled 4%.

Hedge fund clients were the sole net buyers of U.S. stocks last week, said a BofA Securities Equity Client Flow Trends report on Tuesday. That was the opposite of trends during the prior week of September 12-16, when the buying was led by private clients and institutional clients. Meanwhile, BofA found the clients’ buying was entirely in single stocks, and they sold exchange-traded funds for the second week. 

The Dow Jones Industrial Average finished in a bear market for the first time in more than two years on Monday and the S&P 500 notched a new closing low for 2022 as last week’s interest rate hikes by both the Federal Reserve and Bank of England shook the foreign exchange markets

BofA also saw its clients snap up defensive stocks like health care, communication services, tech and utilities companies as the market’s selloff deepened last week. The health care sector also saw the fifth largest inflow in the bank’s weekly history since 2008. It posted inflows for past six weeks after outflows for the majority of this year.

“Defensive sectors in aggregate have seen inflows the last six weeks vs. cyclical sector outflows in five of the last six weeks,” wrote Carey Hall in the note. “Clients sold stocks in seven sectors, led by Cons. Disc., Energy and Financials.”

See: Wall Street’s ‘fear gauge’ might hold the key to the timing of the next market rebound. Here’s why.

However, the strategist attributed the inflows to the large amount of buying in single stocks, and she believed “sales of stocks could pick up in the coming weeks ahead of the Oct. 31 deadline for most mutual funds to realize capital gains”. 

“Tax loss harvesting season is upon us: historically, we see institutional selling peak in Oct. & retail selling peak in Dec.,” added Carey Hall (see chart below).

U.S. stock indexes opened mostly lower on Wednesday. The large-cap index slightly gained 0.1%. The Dow dropped 0.1% and the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.51% lost 0.3%. 

/zigman2/quotes/210599714/realtime
US : S&P US
3,933.92
-7.34 -0.19%
Volume: 0.00
Dec. 7, 2022 5:22p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
33,597.92
+1.58 +0.0047%
Volume: 0.00
Dec. 7, 2022 5:22p
loading...
/zigman2/quotes/210598365/realtime
US : Nasdaq
10,958.55
-56.34 -0.51%
Volume: 4.43B
Dec. 7, 2022 5:16p
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