Investors Flee US Equities Amid S&P 500's Rally as Skepticism Grows

Bank of America clients have initiated the most rapid divestment from U.S. stocks in the past ten weeks amidst an environment of market uncertainty. As of the end of June, the S&P 500 had delivered the best quarterly performance since 2023, yet investors have been cautious, reducing their market exposure.

A report released on Tuesday by Bank of America's quantitative strategists, including Jill Carey Hall, highlighted that all major client groups—comprising institutional investors, retail traders, and hedge funds—collectively withdrew $1.3 billion from U.S. equities last week. This strategic divestment occurred as the S&P 500 surged 3.4% in just five trading days, marking its first historic high since February.

The heightened risk aversion in the market reflects growing investor skepticism regarding the sustainability of the current rally. The U.S. stock rebound since April had fueled the S&P 500's recovery from tariff-related lows, and the benchmark index is now nearing its most overbought levels since July 2024.

Hall pointed out that the sell-off spanned across eight industry sectors, with industrials and real estate leading the declines, exhibiting capital outflows for four consecutive weeks. Utilities, facing pressure from ongoing reviews of former President Donald Trump’s tax legislation in Washington, have been sold off for six straight weeks, marking the longest such streak recently.

Conversely, technology stocks have enjoyed their third consecutive week of significant inflows. Additionally, investors showed increased interest in financials and consumer discretionary stocks. Hall noted, "Following two weeks of allocations favoring defensive sectors, clients' net selling of defensive stocks has begun to outweigh that of cyclical stocks."