Institutional Investors are Buying U.S. Stocks

Bank of America reported that institutional investors have been making "dip purchases" in U.S. equities over the past week. Exchange-traded fund (ETF) inflows have reached almost record levels despite ongoing weakness in individual stock trading.

BofA analyst Jill Carey Hall noted that clients have been "net buyers of U.S. equities, with record-level purchases of $4.3 billion into ETFs." During this period, there were $2.6 billion in outflows from individual stocks. The S&P 500 lost 1.6% in value during the same timeframe.

According to analyses, "Clients sold stocks across all segments, but they became net buyers of both large and small-cap stocks thanks to ETF purchases." Institutional clients are currently the "only net buyers" after making sales the previous week, while hedge funds and retail investors were net sellers.

While it has been expressed that retail investors have historically been the most determined dip buyers, especially since 2020, it has been observed that institutional investors have started to engage in dip buying this year.

Corporate buybacks have also accelerated, but remained "below typical seasonal levels" for the third quarter earnings season. The bank noted that the share of buybacks in the market value over the last 52 weeks is at its "lowest level since March 2024."

The bank added that sector flows have shown a defensive shift, with "the largest outflows occurring in Technology and Communication Services stocks, while Consumer Staples saw the largest inflows." Consumer Staples recorded inflows for five consecutive weeks. The healthcare sector also attracted significant inflows.

ETF flows were seen "across a wide range of sizes and styles," with investors beginning to show a preference for growth stocks over value stocks after an eight-week hiatus. Financial ETFs experienced the largest inflows since May, while Consumer Staples came in second.