Bank of America Securities reported that investors shifted their focus last week, pulling money out of large-cap stocks and redirecting funds toward small caps in the wake of the Federal Reserve’s rate cut.
It was the biggest withdrawal from large caps in over two years, while small caps recorded inflows in three of the last four weeks.
In total, clients remained net sellers of U.S. equities for a second week in a row. Roughly $5.2 billion exited individual stocks — the sharpest weekly outflow since October 2024 — while $1.4 billion flowed into equity ETFs.
For the first time in three months, hedge funds, institutional players, and private clients all turned net sellers. Private clients, who had been consistent buyers through most of the year, reduced positions for a third straight week.
By sector, Bank of America highlighted selling pressure across eight of eleven groups. Technology led the declines, notching its second consecutive week of outflows, while Communication Services posted its first weekly outflow in six weeks. In contrast, Real Estate and Consumer Staples continued to attract inflows, their fourth and third straight weeks of gains, respectively. The bank’s strategists remain overweight on REITs, pointing to the sector’s income appeal in a lower-rate environment.
ETF flows showed investors leaning toward value strategies. Blend and value ETFs logged a fourth consecutive week of inflows, whereas growth ETFs saw their first week of outflows in five. Dividend-focused ETFs were also in demand, trailing only value funds in terms of inflows. Sector ETF buying was broad-based, with Technology leading despite weakness at the single-stock level. Only Consumer Discretionary and Utilities recorded ETF outflows.
Corporate share repurchases also picked up, in line with typical seasonal patterns seen over the past three weeks. Still, Bank of America noted that buybacks as a percentage of market cap have continued to slow, retreating from the peak reached in March.
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