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Illustration: Aïda Amer/Axios

With euphoria taking over the stock market, so-called smart money investors like hedge funds and asset managers at major investment firms are hitting the sell button, expecting prices to fall.

What we're hearing: Retail traders were the only group to buy U.S. equities for the third week in a row as institutional clients sold equities for the third straight week and hedge funds sold for the fifth week, posting their largest outflows in more than a month, Bank of America's data analytics team reported in a note to clients.

  • BofA's clients sold both single stocks and ETFs for the second consecutive week, with overall four-week average flows near record lows and the lowest since mid-January.
  • "Clients were net sellers (-$2.2B) of US equities for the third week in a row as the market reached another record high and equity sentiment marched further toward euphoria," analysts said.

Watch this space: The rolling four-week average of money flows from hedge funds hit a record low in BofA's data history (which dates back to 2008) and were three standard deviations below the average.

  • "The only other time flows were this extreme was at the end of last August after which the S&P 500 declined by 2.5% and 2.3% in the subsequent one and four weeks, respectively," analysts noted.

On the other side: U.S. households increased their exposure to stocks to 41% of their total financial assets in April, the highest level on record, WSJ reported, and stock funds have seen net inflows for seven straight weeks.

  • Since March 2020, equity allocations have risen more than 3.5-times faster than they typically do following bear markets.
  • Flows have been underpinned by record borrowing from hedge funds and big banks, as well as a record level of margin debt being held by retail and institutional investors.
  • Corporate buybacks also have increased notably and year to date are up 19% versus last year's levels at this time.

Where it stands: The market has not declined by 5% in six months, which happens on average three times a year, and it's been 14 months since the S&P 500 had a 10% correction ("a once per year phenomenon, historically"), BofA equity and quant strategists Savita Subramanian and Jill Carey Hall said in a note.

One level deeper: Sell-side analysts are recommending stocks at increasing rates, with BofA's sell-side indicator rising for a fourth consecutive month to its highest in 13 years.

  • "The current level is ... the closest to the 'Sell' threshold since May 2007, after which the S&P 500 declined 7% in the subsequent 12 months," Subramanian and Hall wrote.
  • "Increasingly euphoric sentiment is a driver of our more cautious outlook as we believe that vaccine deployment, economic reopening, stimulus, etc. are largely priced in."

Go deeper

Dion Rabouin, author of Markets
May 4, 2021 - Economy & Business

Spectacular earnings refocus investors on the reopening trade

The S&P 500's economically sensitive cyclical sectors like consumer staples, energy and materials outperformed Big Tech stocks meaningfully on Monday, as stellar earnings reports have again focused traders' attention on the reopening trade.

Where it stands: The Dow rose 0.7%, with the S&P up 0.3% while the Nasdaq fell 0.5%. Major names like Amazon, Alphabet, Facebook and Microsoft all ended lower, despite each of those companies reporting strong earnings for Q1.

34 mins ago - Sports

Axios AM Deep Dive: The Covid Olympics

Illustration: Annelise Capossela/Axios

Welcome to our Axios AM Deep Dive behind the scenes of the Tokyo Olympics detailing the impact of the COVID pandemic, led by Ina Fried, who's on the ground in Tokyo, plus Kendall Baker, who's covering the Games every day in his Axios Sports newsletter.

Firefighters end search for bodies at Surfside

A picture in the memorial that has photographs of some of the victims from the partially collapsed 12-story Champlain Towers South condo building on July 15 in Surfside, Florida. Photo by Joe Raedle/Getty Images

Firefighters on Friday concluded their search for bodies at the site of the June 24 collapse of the Champlain Towers South condominium in Surfside, Florida.

Driving the news: 97 people were killed and one woman, Estelle Hedaya, remains missing.