Investors are Increasingly Buying Dips in Stocks Says BofA, But Clients Should Stay Defensive
2022.05.03 14:53
Investors are Increasingly Buying Dips in Stocks Says BofA, But Clients Should Stay Defensive
BofA strategist Jill Carey Hall reflected on last week’s equity flows that showed the biggest single stock inflows ($5.5 billion) since December 2020.
Clients were big buyers of last week’s dip after the S&P 500 fell 3.3% in the biggest weekly move lower in the past 4 months.
“Inflows were chiefly in single stocks (biggest single stock inflows since Dec. 2020) while equity ETFs saw muted inflows. Clients have bought single stocks in one-third of the weeks YTD – and cumulative single stock outflows YTD are on pace to be the smallest in a decade (while ETF inflows have slowed),” Carey Hall said in a client note.
The strategist noted that institutional clients led buying, followed by hedge funds and private clients. Overall, clients were buying stocks in seven of 11 sectors, led by Tech and Health Care. Interestingly, staples inflows were also the largest in our data history.
“Clients bought Discretionary stocks for the third consecutive week following historically-extreme outflows the four weeks prior. Inflows were the largest since Oct. 2020 and the second-largest in our data history (since ’08). We recently moved Discretionary up to our “favored” underweight (from last) in our S&P 500 sector strategy, as flow capitulation suggests near-term upside risk, while we continue to see risks around margins, valuations, rising rates and slowing big-ticket spend,” Carey Hall added.
BofA strategist Savita Subramanian urged clients to stay defensive as a big selloff in April doesn’t necessarily mean that equities will rebound in May.
“Our cursory math suggests the S&P is pricing in a one-third probability of recession (see Recalibrating our views 29 April 2022). Downside risks remain if the probability rises above that, and since 1936, the probability of an up month following similarly large declines was just 50% (vs. 63% for the entire history). We expect volatility to remain elevated and recommend High Quality stocks and defensive sectors (Health Care and Staples – the latter of which we recently raised to overweight),” Subramanian wrote in a separate note.
By Senad Karaahmetovic
