- Investors are acting like they think the bottom is in for stocks, Bank of America said in a Tuesday note.
- The bank based its analysis on near-record flows into equities during last week's choppy trading.
- BofA clients poured $6.1 billion into US stocks last week, representing the third largest inflow since 2008.
Fund flows into US equities were strong last week, and that suggests investors think the stock market may have bottomed amid its 25% year-to-date decline.
That's according to a Tuesday note from Bank of America, which observed that clients of the bank poured $6.1 billion into US stocks during last week's choppy trading. The S&P 500 rallied 5% between Monday and Tuesday of last week, but gave back most of those gains during the rest of the week.
Last week's buying spree in US stocks was the third largest inflow seen since the bank began tracking the data in 2008. It also represented the fifth consecutive week of inflows. The bank tracks the trading activity of its clients, which include hedge funds, institutional, and private investors.
The stock buying was broad-based by BofA's clients, with inflows into both individual stocks and ETFs across various sectors and styles.
"Clients were bigger net buyers of cyclical sectors than defensive sectors last week, more consistent with trends for much of this year vs. the more defensively-tilted flows we had seen most weeks since late August," BofA said.
One group of BofA's clients that could drive further buying into year-end is corporations with stock buyback programs. According to the note, corporate client buybacks have been subdued this year, but are scheduled to pick up over the next four weeks of earnings when their buyback window reopens.
While BofA's saw a near-record of inflows into US stocks by its clients last week, the bank remains unconvinced that the bottom is indeed in, and is in disagreement with its client base.
Instead the bank expects more volatility is likely ahead as investors grapple with upcoming Consumer Price Index and GDP reports, as well as future interest rate hikes by the Fed. BofA's Savita Subramanian maintains that the S&P 500 will end the year at 3,600, which represents downside potential of just 1% from current levels.
But if a recession materializes, Subramanian expects the S&P 500 to fall as much as 17% to 3,000.