Investors clearly want to stay believers in the buy-the-dip strategy that has worked so well, for so long.
With stocks catching a surprise downdraft last week on Evergrande and debt ceiling concerns — which included the S&P 500 dipping below the key 50-day moving average —investors stepped up and bought big, according to new data out of BofA Securities.
BofA said its clients were “big net buyers” of U.S. equities last week, scooping up $5.9 billion worth of stocks. It marked the third straight week of stock buying by the bank’s clients against the backdrop of renewed volatility.
“Buy-the-dip mentality underscores optimistic sentiment, which has so far provided support for stocks but is close to dangerously euphoric levels,” said BofA Securities strategists Jill Carey Hall and Savita Subramanian.
Last week saw the fourth-largest amount of inflows since 2008, with near record buying by hedge funds after four weeks of selling, the market pros note. Institutional clients also showed “outsized” inflows. Private clients were net buyers of stocks for the first time in eight weeks.
Buying activity was fairly broad-based, per BofA’s research. BofA said clients purchased both stocks and ETFs. Purchases were concentrated in cyclical areas as investors rotated out of high growth names amid the march higher in U.S. Treasury yields.
“Energy has seen the most notable pick-up in inflows over the past few months, with the highest rolling four-week avg. flows in a year,” the strategists indicated. “Hedge funds have been big net buyers of financials the last several weeks, but our positioning work suggests much more room to run: hedge funds’ relative weight in Financials is more than two standard deviations below history.”
The resolve of the buy-the-dip crowd will be severely tested this week.
Markets tanked on Tuesday as investors fretted about rising oil prices, sticky inflation, climbing U.S. Treasury yields. Worries on a potential government shutdown before the weekend also weighed on market sentiment.