Investors demonstrated a significant shift in their allocations last week, favoring technology stocks amidst a broader downturn in U.S. equities, according to data from Bank of America (BofA). This marked a notable divergence in market behavior, as technology recorded its largest inflows ever tracked by the bank since 2008.
During this period, overall selling pressures impacted the wider stock market, with the S&P 500 dropping by 5.8%. Clients displayed a strong tendency toward net selling, highlighted by extraordinary outflows totaling $8.3 billion from individual stocks and an additional $1.1 billion exiting exchange-traded funds (ETFs), a retreat not seen in six months.
Despite the prevailing trend, the technology sector bucked this negative sentiment, attracting substantial investor interest. According to BofA strategist Jill Carey Hall, this sector saw inflows that surpassed all prior records in the bank’s data history. This influx signals a strategic shift, as investors looked to increase their exposure to tech while pulling back from most other sectors. The only other sector that experienced net inflows during this tumultuous week was Health Care.
Historically, periods of significant investments in technology have typically provided favorable outcomes, with the sector often outperforming the S&P 500 in the months that followed, Hall noted.
Outside of technology, the selling trend affected nearly every other sector. Financials, which have now faced outflows every week this year, led the decline. Other sectors such as Energy, Consumer Discretionary, Staples, Utilities, and Materials also recorded substantial or near-record outflows. Communication Services was notable as it experienced its first outflow since late December.
Analyzing the drivers of this sell-off, BofA attributed the bulk of the selling activity to institutional clients, who pivoted after three consecutive weeks of buying, while private clients also continued to reduce their positions for a second week in a row. On the contrary, hedge funds emerged as net buyers, breaking a four-week trend of selling activity.
In terms of market capitalization, selling was pervasive across all levels, with small and micro-cap stocks extending their recent selling streak to eight weeks. Conversely, the ETF flows exhibited contrasting trends, where clients were seen purchasing Growth and Value ETFs while maintaining a sell stance on Blend products. Six of the eleven sectors garnered ETF inflows, with Financials, Tech, and Energy leading the pack. Despite significant outflows from single stocks, Energy ETFs continued to draw investor dollars, while the Materials sector saw the largest outflows in ETF products.
