There Was an 'Unmistakeable' Flight to Value Last Week. Here's What Investors Bought.

Key Takeaways

• Institutional investors bailed on tech last month, averting much of last week’s pain; individual investors bought the dip, according to new analysis, but not “indiscriminately.”
• Some analysts see opportunities to buy “babies that have been thrown out with the bathwater.”

When the beat changes, investors switch up their moves. Last week, they rushed to re-tune their portfolios.

Big tech stocks, metals, and digital assets hit the skids. Institutional and individual investors alike started to favor certain pockets of the market, leading to questions about whether the changes will amount to a meaningful shift in allocations or just a short-term tweak.

The institutional “smart money” stepped out of technology stocks _before _ they took a beating last week, according to recent data. Retail investors likely suffered more, but many are getting choosier in their dip-buying efforts. (U.S. stocks, broadly speaking, were rising to start this week.)

The energy, industrials, and materials sectors—where institutions parked after pulling out of the tech sector last month—were rare bright spots last week, according to Vanda Research. Individual investors plowed into the energy sector, Vanda said, with Wednesday marking the “largest net retail buying” in State Street’s Energy Select Sector’s SPDR ETF (XLE) since March 2022. (They also bought into stocks like Chevron (CVX) and Exxon (XOM).)

WHY THIS MATTERS TO YOU

Over the last few years, U.S. stocks—particularly the tech sector—has been the place to be. More recent activity suggests that investors are stepping into other asset classes.

Retail investors picked their spots in tech, with dollars going to Alphabet (GOOGL), AMD (AMD), and Palantir (PLTR) rather than picking up the whole sector outright, Vanda data show. More broadly, according to the firm, they’ve showed “restrained behavior” this year, with buying activity roughly one-tenth of the volumes seen last summer.

“This suggests retail is not indiscriminately buying the dip,” Vanda wrote last week.

“There have been clear rotations, away from large caps, especially Tech, and into other sectors and small caps,” Deutsche Bank analysts wrote Friday.

At Bank of America, cash, bonds, and international stocks are in, while gold and crypto are out. BofA Global Research investment strategist Michael Hartnett and his team said more than $87 billion in client flows went to cash in a report published Friday. Just under $35 billion flowed into stocks and $23 billion went into bonds.

European stocks saw inflows of $4.2 billion, the biggest weekly haul since April, and more than $5 billion went into Korean stocks—the biggest weekly inflow on record, according to BofA. Gold saw its first week of outflows since November, while crypto saw its biggest weekly outflows since then.

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Investors at large appear to have adopted a “more risk-forward stance” that’s driving small- and mid-size stocks higher than large-caps, Oppenheimer chief investment strategist John Stoltzfus wrote in a Sunday note.

“Institutions repositioning complex short-term strategies has been a source of market churn of late and is likely to remain near term a source of volatility feeding trading activity, testing the market’s climb of the proverbial ‘wall of worry,’” he said.

That would give some investors the chance to “‘catch babies that get thrown out with the bathwater’ in market downdrafts,” Stoltzfus wrote, a reference to the notion that investors would seek to select appealingly priced assets pulled lower by broader concerns.

Some deal-oriented buying was visible in investors’ preference for certain style factors, including value stocks over growth. The “flight to value was unmistakable last week,” Liz Ann Sonders, Schwab’s chief investment strategist, wrote on social media.

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