• Bank of America reports clients were net sellers of U.S. equities despite the S&P 500 rising 0.5%, signaling weak conviction in the rebound.
  • Single stocks saw $3.9 billion in outflows for the sixth straight week, partly offset by $1.4 billion in ETF inflows for the fifth week.
  • Institutional clients led the selling, while hedge funds bought for a third consecutive week; sector trends were broadly negative, with selling in 9 of 11 sectors.

Cautious Positioning Amid a Rally

Bank of America's latest weekly flow data reveals a persistent lack of conviction among investors, even as the S&P 500 edged higher. Clients continued to net sell U.S. equities, with single stocks bleeding $3.9 billion—marking the sixth straight week of outflows. This was partially cushioned by $1.4 billion in ETF inflows, extending a five-week buying streak in passive vehicles.

"The divergence between stock and ETF flows suggests investors prefer broad-market exposure over concentrated stock risk," said a BofA strategist, speaking on condition of anonymity. Institutional clients were the primary sellers, while private clients returned to buying. Hedge funds added to positions for the third week, a contrarian move that some analysts view as a late-cycle signal.

Sector Rotation Deepens

Sector-level flows were mostly negative, with 9 of 11 sectors experiencing outflows. Healthcare saw the heaviest selling, its worst since December 2024. Energy outflows extended to eight weeks, although ETFs in the sector continued to attract inflows. Tech bucked the trend, posting inflows ahead of earnings after recent outflows, signaling cautious optimism among some investors.

Buybacks also slowed, remaining below long-term averages. Weakness in tech buybacks was offset by stronger activity in financials and energy, according to the report.

Implications for Market Momentum

The persistent selling into a rally raises questions about the rebound's durability. Without a shift in institutional sentiment, the S&P 500 may struggle to hold gains, relying on ETF inflows and sporadic sector strength. BofA's data underscores a market caught between cautious positioning and selective risk-taking, with hedge funds and private clients acting as temporary counterweights.

Correction: An earlier version of this article misstated the number of sectors with outflows. It is 9, not 10.