Despite a week of market chaos sparked by the Federal Reserve's hawkish stance, Bank of America clients leaned into risk, driving massive inflows into equities and exchange traded funds.

Data released Tuesday shows that BofA clients poured nearly $10 billion into U.S. assets — the second-largest inflow on record since 2008 and the biggest since January 2017.

Jill Carey Hall, a Bank of America analyst, highlighted a streak of seven consecutive weeks of inflows and said that, as in the previous five weeks, clients favored both single stocks and ETFs, with larger inflows directed toward single stocks.

The four-week moving average of inflows rose to $6.36 billion, the highest on record.

This appetite for risk came even as the S&P 500, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), tumbled 2% for the week, with Wednesday volatility spiking to its highest level since 2018.

While Fed Chair Jerome Powell's hawkish rhetoric rattled markets, the flows story underscores a crucial trend: investors remain willing to aggressively buy the dip.

Institutional Buying Surges, Hedge Funds Sell

A closer look at the data revealed divergent behaviors across investor groups.

Institutional clients, often considered market bellwethers, were net buyers for the third consecutive week, driving the largest rolling four-week inflows in nine months.

Bank of America analysts highlighted that this trend often follows October's tax-loss selling season for mutual funds. Retail investors also joined the buying spree, marking their second consecutive week of inflows.

In contrast, hedge funds remained sellers for a second straight week.

Private clients, traditionally heavy sellers in December due to tax-loss harvesting, were less aggressive this year, with their single-stock selling activity "slightly less so than in the average December," according to Hall.

Notably, while private clients leaned into ETFs, corporations continued their stock buybacks at a pace that is on track to set a record high for the year when measured as a percentage of the S&P 500's market cap.

Tech, Industrials Shine, Health Care Suffers

Breaking down the flows by sectors, tech stocks emerged as the strongest performers, netting $4.3 billion in inflows.

Industrial stocks followed with their largest inflows since February 2022, while Consumer Staples also saw robust buying.

Conversely, Health Care and Consumer Discretionary stocks led the outflows, with Health Care seeing net selling in four of the last five weeks.

ETF flows painted a similar picture, with tech and industrial ETFs dominating inflows while Financials and Real Estate experienced the most significant outflows.

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Illustration created using artificial intelligence via Midjourney.