Investors have drained $4.4 billion from tech stocks - the most ever - says Bank of America

By Barbara Kollmeyer

While investors remain under the spell of tech companies catering to AI, a record amount of selling appears to have hit the overall sector in recent days.

That's according to Bank of America strategists, who reported Friday that investors pulled $4.4 billion from tech stocks in the week ending March 6, the biggest-ever outflow and the first in nine weeks.

Equities overall saw the seventh-straight week of inflows for a total of $91 billion - representing the strongest such trend in two years, said a team led by Michael Hartnett, citing data from fund-flow-data provider EPFR.

Investors poured money into investment-grade bonds - the biggest inflows since September 2020 of $13.3 billion, while cash saw inflows of $32 billion. Annualized year-to-date flows on crypto - bitcoin hit a fresh record earlier this week - indicates a record $40 billion of flows, said Bank of America.

Another stand out was real estate, which saw the biggest weekly inflow since January 2022 of $1.2 billion.

"$6 trillion to $7 trillion in money-market funds and all of it getting 5% in interest...maybe that's what giving everyone the confidence to go speculate," said Hartnett and the team.

In the past week, Nvidia has been a standout gainer, up 16% and poised for its best weekly performance since May 2023, according to FactSet. Apart from Microsoft (MSFT), the remainder of the "Magnificent Seven" tech stocks - Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), Meta Platforms (META) and Tesla (TSLA) have been hit by selling over several sessions.

Tesla shares are set to lose 11.8% this week, the worst such performance since the week ending Jan. 26, according to FactSet. The EV maker suffered a blow this week when a known bullish analyst at Morgan Stanley cut his target price on the stock and warned of a loss this year.

As for why investor interest on some tech stocks may be waning, Jordan Klein, an analyst at Mizuho, said Thursday that some may be shedding past winners to chase more exposure to AI-chip players such as Nvidia, in sentiment that's starting to resemble a "frenzy."

See: Nvidia's stock continues to hit new highs. Why that may be 'a bit unhealthy.'

"2020s are the 2020s & abnormal price action decade-to-date set to remain the norm," added Bank of America's Hartnett, adding that the "ferocious" 25% plus gain in five months for stocks has occurred just 10 times since the 1930s.

Normally, investors will see such surges happening from recession lows - 1938, 1975, 1982, 2009, 2020 - or the beginning of bubbles such as January 1999, he said, but adding that while the market is stretched and extended, bubble history shows it can keep going.

"Fed causes bubbles & Fed pops bubbles and in 2024 Fed's determination to cut rates means 'we're not too far from it,'" said the Bank of America team. They predict the present "cynical bull" stance among investors will endure until "the day before the Fed cuts," and a few other things happen such as 10-year real rates above 2.5%.

As well, the S&P 500 trailing price/earnings ratio pushing above 25 times from a current 23, will be a clear "run for the hills" signal, said the strategists.

Read: Cathie Wood sounds warning about Nvidia, whose rally she missed

Also: It's not just Nvidia: These companies are finally making real money from AI

-Barbara Kollmeyer

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03-08-24 1047ET

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