Bank of America strategists have noted a significant shift in investor sentiment towards the technology sector, with a record amount of selling observed in recent days. According to their report, investors withdrew a staggering $4.4 billion from tech stocks during the week ending March 6, marking the largest outflow ever recorded and breaking a streak of nine consecutive weeks of inflows.
Despite this, equities as a whole continued to attract investment, experiencing the seventh consecutive week of inflows totaling $91 billion. This trend represents the strongest momentum observed in two years, based on data from EPFR, a fund-flow-data provider.
Investors also demonstrated a preference for investment-grade bonds, with the largest inflows since September 2020 totaling $13.3 billion. Additionally, cash saw significant inflows of $32 billion. Year-to-date flows into cryptocurrencies, particularly bitcoin, reached a record $40 billion, indicating sustained interest in digital assets.
Real estate emerged as another standout performer, witnessing the largest weekly inflow since January 2022, amounting to $1.2 billion.
Bank of America’s team, led by Michael Hartnett, attributed the heightened speculative activity to the substantial amount of capital parked in money-market funds, estimated at $6 trillion to $7 trillion, earning a 5% interest rate.
During the past week, Nvidia stood out as a notable gainer, surging by 16% and on track for its best weekly performance since May 2023, according to FactSet data. However, apart from Microsoft, other major tech stocks, including Apple, Amazon.com, Alphabet, Meta Platforms, and Tesla, experienced selling pressure across multiple sessions.
Tesla shares are poised to decline by 11.8% this week, marking the worst performance since January 26, as reported by FactSet. The electric vehicle manufacturer faced setbacks this week when a typically bullish analyst at Morgan Stanley reduced his target price for the stock and forecasted a loss for the company this year.
The decrease in investor interest in certain tech stocks may be attributed to a shifting focus towards AI-chip players like Nvidia, according to Jordan Klein, an analyst at Mizuho. This sentiment is beginning to resemble a “frenzy,” he noted.
Bank of America’s Michael Hartnett commented on the unusual market dynamics of the 2020s, describing it as an era of abnormal price action. He highlighted the rapid 25% plus gains in stocks over five months, a phenomenon that has occurred only ten times since the 1930s. Typically, such surges occur from recession lows or at the outset of bubbles. While the market appears stretched and extended, historical patterns suggest that bubbles can persist.
Hartnett and his team pointed to the Federal Reserve’s role in causing and deflating bubbles, noting that the Fed’s determination to cut rates in 2024 indicates that the market may not be too far from experiencing such dynamics. They anticipate that the current “cynical bull” sentiment among investors will persist until the day before the Fed cuts rates, along with other conditions such as 10-year real rates surpassing 2.5%.
Furthermore, the strategists highlighted that if the S&P 500 trailing price/earnings ratio exceeds 25 times from the current 23, it would serve as a clear signal for investors to “run for the hills.”