Bank of America’s big-money clients hate stocks, and they have been selling since the financial crisis.
A chart from the firm’s latest fund manager survey published on Tuesday, shows that institutional clients — big mutual funds, hedge funds, pension funds, etc. — have sold about $120 billion worth of stocks over the last eight years.
Notably, pension funds — the subject of growing concern given that many have return assumptions of 8% a year — have just barely been net buyers of stocks over the period. BAML notes, however, that pensions are just a small portion of its institutional client base.
But according to Tom Lee at Fundstrat, this net selling provides a major contrarian signal for markets that has a very bullish analogue.
Lee said on Twitter on Tuesday that these outflows look a lot like the behaviour we saw from institutions between 1982-1990, the first eight years of what became the biggest bull run for stocks in US history.
Of course, seeing this as a bullish sign is not unexpected coming from Lee, one of the most strident bulls on the street. Lee has a year-end price target for the S&P 500 of 2,325, a little more than 200 points above current levels for the benchmark index.
But with stocks pressing to new highs in recent days and breaking out of what was effectively an 18-month period when markets were little-changed, the question now becomes whether this breakout can be sustained or if we’ll see stocks continue to languish around current levels.
For a bull like Lee, seeing institutional money continue to sell down stock allocations as the market continues rising sets up the possibility for a big sentiment reversal and the catalyst the market needs to continue its post-crisis run.