Market Resilience: Investors Defy Fed’s Hawkish Stance
Despite a tumultuous week in the markets, sparked by the Federal Reserve’s aggressive stance, investors demonstrated remarkable resilience, pouring billions into equities and exchange-traded funds (ETFs). According to Bank of America’s latest data, clients injected a staggering $10 billion into U.S. assets, marking the second-largest inflow since 2008 and the biggest since January 2017.
A Streak of Confidence
This influx of capital represents the seventh consecutive week of inflows, with investors favoring both single stocks and ETFs. Notably, single stocks attracted larger inflows, indicating a strong appetite for risk. The four-week moving average of inflows soared to a record high of $6.36 billion, underscoring investors’ willingness to aggressively buy into the market.
Divergent Behaviors Emerge
A closer examination of the data reveals distinct patterns among different investor groups. Institutional clients, often seen as market trendsetters, drove the largest rolling four-week inflows in nine months, marking their third consecutive week of net buying. This trend is often preceded by October’s tax-loss selling season for mutual funds. Retail investors also joined the buying spree, recording their second consecutive week of inflows.
Hedge Funds Buck the Trend
In contrast, hedge funds remained net sellers for the second straight week, diverging from the broader market trend. Private clients, typically heavy sellers in December due to tax-loss harvesting, were less aggressive this year, with their single-stock selling activity slightly less pronounced than in the average December.
Corporate Buybacks Reach Record High
Meanwhile, corporations continued their stock buybacks at a pace that is on track to set a record high for the year, measured as a percentage of the S&P 500’s market cap. This phenomenon is likely driven by the current market volatility.
Sector Breakdown: Tech Stocks Lead the Charge
Breaking down the flows by sectors, tech stocks emerged as the strongest performers, attracting $4.3 billion in inflows. Industrial stocks followed with their largest inflows since February 2022, while Consumer Staples also saw robust buying. Conversely, Health Care and Consumer Discretionary stocks led the outflows, with Health Care experiencing net selling in four of the last five weeks.
ETF Flows Mirror Sector Trends
ETF flows mirrored the sector trends, with tech and industrial ETFs dominating inflows, while Financials and Real Estate experienced the most significant outflows. This suggests that investors are seeking exposure to growth-oriented sectors, despite the Fed’s hawkish stance.
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