Institutional investors flee stocks as inflation fears drive selling to its highest in 2022 while retail investors remain buyers overall

• Stock sales by institutional investors has kicked up to highs for the year, S&P Global Market Intelligence said Monday.
• Against a backdrop of inflation concerns, institutional investors sold $51.2 billion worth of equities in the five weeks ended September 7.

Stock selling by institutional investors has accelerated to highs for the year, S&P Global Market Intelligence said Monday, driven by concerns about inflation which has spiked up well beyond the Federal Reserve's target.

Institutional investors, which include pension funds and insurance companies, sold $51.2 billion worth of equities in the five weeks ended September 7, according to a report released by the research firm. The amount represented about 25% of their total year-to-date selling heading into the period.

The selling by long-only investors was taking place against a backdrop of growing inflation fears, it said. Elevated costs for shelter, food, and other items have driven consumer price inflation to more than 8% this year. The Fed has responded partly by pushing up interest rates four times so far this year. Pricier borrowing costs and concerns about a Fed-led economic recession have pushed US stocks into a bear market this year.

Institutional investors have sold most S&P 500 sectors, led by industrials and real estate.

"The magnitude of selling by the group was relatively uniform across most sectors, with the group's aggressive rotation out of equities likely leading to more indiscriminate selling as opposed to isolating to specific areas," said S&P Global MI.

Hedge funds were also showing up as sellers in the market, to the tune of $8.6 billion for the year, although they have purchased $5.5 billion over the latest month.

But retail investors have been the sole net buyers of equities among the three groups this year. Individual investors have bought an aggregate of $18 billion in stocks but in August were sellers of $6.7 billion.

Retail investors had "chased the rally" in the energy sector over the month and sold industrials and tech names. The energy and utilities sectors are the only two of the S&P 500's 11 sectors in positive territory in 2022, up by 41% and 3.4%, respectively, as of mid-Monday.

"Notably, hedge funds used profits in the only two positive sectors for the year to fuel a rotation into more beaten down names over the month, with the magnitude of buy-the-dip strategies outweighing that of profit-taking activities," said the research firm.

The S&P 500 has dropped 18% this year but has come off its June lows. The Nasdaq Composite was down 27%, after coming off deeper losses for 2022. But some market strategists have warned stocks may retest this year's floors on major indexes.