Key Takeaways
Hedge funds led a record-setting wave of selling in US stocks last week, driving Bank of America Corp.'s clients to be net sellers as a group for the first time in four weeks.
In a report dated May 19, strategists led by Jill Carey Hall noted that the outflows were the largest on record from hedge funds, which dumped stocks for a second consecutive week. The selling was concentrated, with five of the 11 S&P 500 sectors seeing outflows. The technology sector experienced its largest-ever outflow, followed by communication services and industrials.
The risk-off move comes as investors grapple with increasing U.S. sovereign risk, with federal debt exceeding 100% of GDP for the first time since 1946. This has fueled a broader "Sell America" trade, as a global bond selloff pushes U.S. Treasury yields to multi-year highs, reducing the appeal of equities and increasing the burden of dollar-denominated debt for companies.
The bearish stance from hedge funds, however, contrasted with other client segments. Institutional clients were net buyers for a third straight week, while private clients also returned to buying, the report showed. The key question for the market is whether the defensive rotation, marked by inflows into financials and utilities, can provide a floor for indexes as "smart money" rapidly de-risks from growth sectors.
This article is for informational purposes only and does not constitute investment advice.
