stocks at a record pace as market-beating bets dwindle to lowest ever

Investors are increasingly focusing on picking individual stocks as market gains become concentrated in fewer companies. Bank of America (BofA) analysts reported that their clients were net buyers of U.S. equities last week for the first time in three weeks. This buying spree resulted in a $6.1 billion net inflow, marking the fifth largest in BofA’s records.

BofA clients purchased both single stocks and exchange-traded funds (ETFs), but the inflow into individual stocks was the largest since 2008, the start of BofA's data records. Notably, all major client groups, including retail investors, hedge funds, and institutional investors, were net buyers. They bought stocks across all sectors except energy, with technology and discretionary shares seeing the most significant inflows.

This surge in interest occurred just before the stock market reached new record highs. Fresh inflation data provided the Federal Reserve with more flexibility to lower interest rates soon, and Fed Chairman Jerome Powell's increasingly dovish tone further bolstered market confidence.

The current emphasis on individual stock-picking contrasts with the trend of passive investing, which has gained popularity in recent years. Funds that track indexes like the S&P 500 have attracted more capital, while actively managed funds have struggled to outperform the market. However, the recent boom in artificial intelligence has spotlighted a few tech giants with significant gains, driving much of the market's recent advances. For example, Nvidia alone accounted for more than a third of the S&P 500’s year-to-date gains as of June.

This market concentration makes it more challenging to find stocks outperforming the overall market. According to Apollo Global Management’s chief economist Torsten Sløk, the percentage of S&P 500 stocks outperforming the index has dropped to a record low, falling below 25%. Sløk humorously noted that stock picking in the S&P 500 now essentially depends on whether one favors tech stocks.

This situation underscores the outsized role certain individual stocks are playing in the market's performance. As a result, more investors are taking a targeted approach, carefully selecting stocks they believe will continue to drive market gains. This shift highlights a broader trend where investors are moving away from passive strategies and are instead making calculated bets on specific companies, particularly in the technology sector.

In summary, the increasing concentration of market gains in a few key stocks is driving investors to pick individual stocks more carefully. This trend is a response to the challenges posed by passive investing and the impressive performance of tech giants amid the AI boom. As market dynamics evolve, investors are adapting their strategies to capitalize on the most promising opportunities.