According to a Wall Street Survey, Investors Sold U.S. Stocks at Their Fastest Pace on Record Last Week

Institutional investors using Bank of America for trading have been exiting U.S. equities at an unprecedented rate, according to a widely monitored survey conducted by the bank’s strategists.

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The latest BofA Securities weekly survey of fund managers found that clients reduced their long positions on U.S. stocks by 40 percentage points in March—the most significant drop in the survey’s history, according to Michael Hartnett, an equity strategist at BofA.

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Investors made a substantial reduction in their exposure to U.S. equities, with long positions plunging from 35% to -6%, Hartnett noted. While a portion of these funds was moved into cash, European stocks also saw a surge in interest, with allocations to European equities reaching their highest level since July 2021.

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Additionally, cash allocations rose at the fastest rate since December 2021, suggesting a shift toward more defensive positioning.

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Market Timing and Investor Sentiment

This significant shift away from U.S. stocks may appear poorly timed, given that the S&P 500 recently dipped into correction territory. However, Hartnett reassured investors that equities are not yet at extremely oversold levels, meaning there could still be room for further downside before a major buying opportunity arises.

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Despite the decline in U.S. stock positions, investors’ overall sentiment has not reached extreme bearish levels. Hartnett explained that the current market conditions are not screaming “buy now”, indicating that investors remain cautious rather than outright pessimistic.

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Recession Concerns and Market Risks

One factor influencing investor sentiment is the lack of concern about an immediate recession. Typically, during times of economic uncertainty, investors shift funds into bonds as a hedge against downturns. However, bond inflows have been relatively muted, suggesting that most investors do not see an economic downturn as imminent.

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Still, there are concerns about potential risks. According to the survey, 55% of respondents identified a trade-war-induced recession as the biggest “tail risk” for the market, meaning a geopolitical escalation could be a major threat to economic stability.

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The proportion of cash allocations increased by 62 basis points, signaling a shift toward safer assets. This rise in cash holdings ended a sell signal that had emerged in December, which had previously been a reliable indicator of downward pressure on stocks.

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Additionally, the increase in cash coincided with one of the largest jumps in global macroeconomic pessimism seen in over 30 years, reflecting heightened concerns about economic conditions worldwide.

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Data from EPFR, which tracks global investment flows, also confirmed a significant shift in investor preferences. While inflows into U.S. stocks have slowed, investors have been redirecting capital into European equities, reinforcing the trend seen in the BofA survey.

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U.S. Stock Market Performance

Amid this shift in institutional positioning, U.S. stocks managed to notch back-to-back gains on Monday for the first time in about a month.

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However, the rally showed signs of weakness by Tuesday, as the S&P 500 opened lower. Both the Nasdaq Composite and the Dow Jones Industrial Average also struggled, reflecting investor uncertainty about whether the market could extend its gains into a third consecutive session.

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Looking Ahead

As institutional investors pull out of U.S. equities and reallocate funds into cash and European stocks, the market is facing growing uncertainty. While recession fears are not at extreme levels, concerns about trade tensions and global economic headwinds remain a key focus.

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With stock valuations not yet at deeply oversold levels, investors may remain cautious until clearer signals emerge from macroeconomic data and Federal Reserve policy decisions in the coming months.

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