U.S. stocks saw the largest weekly outflow of funds in nearly four months; Bank of America’s Hartnett: “Sell signals” are still flashing.

U.S. stocks saw the largest weekly outflow of funds in nearly four months; Bank of America’s Hartnett: “Sell signals” are still flashing.

US equity funds are experiencing the fastest outflow of funds so far this year. Meanwhile, Bank of America's flagship sentiment indicator has risen into the extremely bullish range, with warning signals flashing persistently.

According to Wind Trading Desk and the latest Bank of America weekly report, for the week ending July 1, US equity funds saw an outflow of $17.2 billion, marking the largest weekly net redemption since March 2026. This is the second continuous week of net outflows for US equity funds, signaling a clear reversal from the strong inflow trend since the beginning of the year.

Meanwhile, Bank of America's Bull & Bear Indicator has risen further from 9.1 to 9.5, remaining deep in the "extremely bullish" range. The "sell signal" triggered on May 20th has not yet been lifted.

As funds exit US equities, investors are shifting their attention to investment grade and high yield bonds. Investment grade bonds attracted $17.2 billion in inflows this week, marking 13 consecutive weeks of net inflows; high yield bonds attracted $3.4 billion, the largest weekly inflow since May 2025. Within the stock market, funds continue to focus on the technology sector — tech funds saw $14.3 billion inflow this week, with cumulative inflows since the start of the year expected to reach a historical record of $152 billion.

Chip Stocks Volatile, AI Valuation Concerns Trigger Selloff

Amid outflows from US equities, the semiconductor sector is under particular pressure. This week, doubts centered around AI-related high valuations continue to hit chip stocks, and the Philadelphia Semiconductor Index has dropped an accumulated 11% over the past two trading days.

JP Morgan strategists pointed out that the extreme outperformance of US semiconductor stocks versus AI hyperscaler cloud companies has created a valuation gap that is unsustainable and expects this gap will ultimately narrow.

Quarterly-wise, the Philadelphia Semiconductor Index is up 88% in Q2, Korea Composite Stock Price Index (KOSPI) is up 64%, biotech up 24%, small caps up 21%, banks up 17%, with AI-related assets leading global gains. However, energy, gold, bitcoin, and defense sectors significantly lagged. Oil prices fell 31%, Bitcoin dropped 14% in the same period.

Bull & Bear Indicator Rises to 9.5, "Sell Signal" in Place for Six Weeks

Bank of America Chief Investment Strategist Michael Hartnett wrote in the latest report that the Bull & Bear Indicator rose from 9.1 to 9.5 this week. The upward drivers came from increased long positions by hedge funds (reduction of S&P 500 futures shorts and VIX futures longs), rebound in high yield bond inflows, and fund inflows into tech and healthcare sectors.

The indicator triggered a "sell signal" on May 20, which is still active. Bank of America data shows that since 2002, this indicator has triggered a "sell signal" 17 times, with average global equity market declines of 2%–3% two to three months after the signal, accuracy rate around 60%, and the largest historical drawdowns between 15% and 20%.

In terms of component sub-indicators, Fund Manager Survey (FMS) positions are at the 100th percentile, flagged as "extremely bullish"; bond fund flows at the 85th percentile, also "extremely bullish"; equity fund flows at the 80th percentile, in the "bullish" range; hedge fund positions at the 79th percentile, credit market technicals at the 77th percentile, all pointing to accumulating bullish sentiment.

Rotation of Funds: Japanese Stocks Favored, Commodities and Gold Under Pressure

As US equities see outflows, some funds are moving to overseas markets. Japanese equity funds attracted $1.9 billion in inflows this week, marking the largest weekly inflow in seven weeks.

From a broader asset allocation perspective, global equities saw a net outflow of $13.9 billion this week, including mutual fund redemptions of $18.8 billion, and ETF net inflows of $5.2 billion. Bond markets continued to attract funds, with a total weekly inflow of $29.1 billion — bond net inflows have now lasted 62 consecutive weeks. Money market funds attracted $55 billion.

Commodities and gold remain under pressure. Gold saw $3 billion net outflow this week, the seventh consecutive week of outflows, with the longest streak since March 2024. Cryptocurrency net outflows totaled $2 billion, the largest weekly outflow since November 2025. Energy funds saw outflows of $3.2 billion, the largest weekly outflow since July 2024; materials funds saw outflows of $6.8 billion, the largest since March 2026.

BOA Private Clients: Extending Duration, Reducing Equities

Bank of America’s private client division (with about $4.5 trillion in assets under management) also signals caution in its positioning data. Currently, asset allocation is 65.4% equities, 17.6% bonds, 9.8% cash. Over the past week, private client net redemptions from equities were the largest in four weeks.

On the fixed income side, private clients are clearly lengthening duration: US Treasury T-bills saw outflows for the fifth straight week, while T-notes continued to see net inflows. Over the past four weeks, private clients increased ETFs in materials, healthcare, and municipal bonds, while reducing Japanese equities, consumer staples, and financial sector holdings.

Since the start of the year, private client holdings in equity ETFs have grown by 5.4%, but over the last week growth slowed to 0.1%, showing that short-term appetite for further allocation is cooling noticeably.

 

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Content above courtesy of Wind Trading Desk.

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