Bank strategist Jill Carey Hall said in a note Tuesday, April 11, that Bank of America (BofA) clients sold around $2.3 billion in U.S. equities of all sizes last week, despite the relative quiet in the stock market.
BofA financial analysts led by Hall indicated that that was the second consecutive week of outflows, but they did not specify the reasons for the withdrawals.
However, data compiled by the bank showed clients sold both single stocks and exchange-traded funds (ETFs) for the second consecutive week while selling was broad-based across client groups, including institutions, hedge funds, retail and size segments.
The outflows come as uncertainty brews about the staying power of this year's rally in the S&P 500. Traders have been losing conviction lately, with the gauge posting its sixth straight day of moves less than 0.6 percent in either direction, the longest stretch of stasis since 2021.
Bank clients also yanked $451 million from real-estate stocks last week, the largest withdrawal since July 2021. Meanwhile, ETFs posted their biggest outflow since January across all styles, including growth, value, and blend and across small, mid, and large-cap ETFs.
Critics are speculating that people losing faith in the banking system are going for more tangible assets such as precious metals gold and silver and other investment vehicles.
BofA said buybacks accelerated as client repurchases gained steam and were slightly above seasonal trends for the first time in ten weeks. According to Fox News, buybacks typically accelerate over the subsequent six weeks after earnings season begins per Hall's note. BofA also expects no net contribution to earnings per share from buybacks this year.
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BofA: Brace for big cuts to earnings as America faces tougher credit environment
Apart from bleeding equities, the financial institution also warned investors to expect more downside to earnings estimates for 2023 as they dive into a tighter credit environment.
"We forecast an in-line quarter, but the focus will be on guidance and tighter credit conditions impacting CapEx/buybacks," analysts said in a note.
They believe that as the American economy enters recession, cuts to earnings estimates will accelerate. To date, cuts have been lagging those seen in prior downturns.
Markets Insider reported that Wall Street forecasters had trimmed 2023 earnings estimates by 13 percent to $220 per share from around $250 a share. But 2023 EPS estimates will likely trend even lower to $200 per share, BofA said.
Analysts have been warning of anemic corporate earnings this year due to the looming economic collapse. Furthermore, central banks continue to raise interest rates to their highest levels since 2007. Experts said instead of curbing inflation into its target, it easily overtightens the economy into a recession.
"The risk of downside has been amplified with the recent crash of Silicon Valley Bank (SVB), which wiped out some regional lenders and put a major hole in banks' balance sheets. That's likely to make banks less willing to lend, tightening the economy even further," the website indicated. (Related: Top 25 US banks lose $89.7B after withdrawals surge following collapse of SVB and Signature Bank.)
Investment banking company Morgan Stanley predicted that stocks could soon face the biggest earnings recession since 2008, and previously predicted that the S&P 500 could soon plunge by 26 percent.
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