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Wall Street Says Clients Continue to Doubt the U.S. Stock Market Rally

Investors are finding few reasons to love stocks.

Source: Bloomberg

Welcome to Dow 18,000. You're going to love it here. Or not. Some of the biggest investment managers on Wall Street certainly don't seem to.

New research from Bank of America Merrill Lynch and JPMorgan Chase & Co. underscores the degree to which the banks' biggest clients remain hesitant to believe that the recent rally in U.S. stocks will continue. BofAML notes that last week, when the S&P 500 index was up 1.6 percent, its customers were net sellers of stocks.

It's the 12th week in a row that has seen big investors eschewing equities, BofAML said, though the rate of such selling appears to be moderating.

"The pace of selling slowed for the second week, but persistent sales suggest to us that clients continue to doubt the market rally," BofAML's Jill Carey Hall and Savita Subramanian said in the note. 

On the plus side, BofAML notes that hedge funds were net buyers of stocks last week for the first time in about two months. However, even that nugget of cheer may be susceptible to pessimism.

JPMorgan's prime brokerage team, which provides services for hedge fund clients, noted in recent research that many of its customers have been busy buying stocks to cover short positions that were betting equities will fall.

"March brought the heaviest net [short] covering seen by the prime brokerage in several years," they said in a note published late last week. "Activity was skewed towards single names but [exchange-traded fund] activity also was strong. All sectors experienced net covering, with energy and consumer, [and] cyclicals in the lead."

Investors first became skittish when the stock market had one of its worst starts to a year on record, trickling into everything from the market for initial public offerings to startup valuations. Each period of bullishness has been followed by worries over global growth, low oil prices, or what happens in an economy with less action from central banks

Since the lows of the year were reached in February, the S&P 500 has rallied roughly 15 percent. 

 

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