After U.S. equity inflows neared record last week, Bank of America has a warning

Inflows to stocks neared a record last week as bets on a bottom forming spurred major dip-buying across U.S. equities. The optimism, however, is likely premature, according to Bank of America.

Analysts at the bank said in a Tuesday note that allocations to equities reached the third-highest sum since 2008 during the five-day period, according to client data — a sign investors believe indicates that the market sell-off is nearing an end. But BofA contested the notion that the worst is behind for the stock market.

“Last week, during which the S&P 500 rallied 1.5% off recent lows, clients were big net buyers of U.S. equities,” the analysts stated, noting that the $6.1 billion total of inflows was the third largest inflow in the banks data history since ’08 and the fifth consecutive week of inflows. “Our view? More volatility likely ahead.”

Flows suggest investors believe market may have bottomed: client flows into US equities last week were 3rd-largest since '08. — Flows suggest investors believe market may have bottomed: client flows into US equities last week were 3rd-largest since ’08.

After surging for the first two days of last week, a jobs day plunge erased much of the gains. Still, stocks managed to end the week higher after three straight weeks of losses.

Bank of America noted that the broad-based shopping spree across U.S. equities ranged from single stocks to exchange-traded funds while the purchases spanned hedge funds, institutions, and individual investors. Institutional investors were the biggest buyers, recording their first inflow in a month and largest inflow since December 2020.

A set of weakening economic data at the start of last week stoked hopes the Federal Reserve may shift away from aggressive monetary tightening sooner than planned, but Wall Street strategists have contested that hopeful notion.

Analysts at Goldman Sachs on Tuesday said it was “too early to price in a pivot,” adding that with expectations for more rate increases, the risk of further declines remains for U.S. equity markets.

JPMorgan CEO Jamie Dimon also said that stocks may fall an “easy 20%” from current levels in a hard-landing scenario as analysts at his bank warned another hot consumer price reading on Thursday could trigger a 5% plunge for the S&P 500.