Investors are selling their stocks even as the S&P 500 cruises to all-time highs, according to BofA

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  • Investors are selling their stocks even as the S&P 500 surges to all-time-highs, according to a note from Bank of America.
  • The selling has been led by institutional clients and primarily concentrated in individual stocks rather than ETFs, BofA said.
  • The selling of stocks near record highs suggests euphoria has not yet taken over the market.
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Caution among investors continues to reign supreme as selling in stocks picks up even amid a surge to record highs for the S&P 500.

A Tuesday note from Bank of America said investors were net sellers of US stocks last week, with institutional investors driving the selling even as the S&P 500 crossed the 4,000 level for the first time ever.

According to BofA, investors have been selling individual stocks while buying ETFs. Last week BofA tallied up $400 million in net outflows from US stocks, the note said.

Data from BofA's client flow trends lines up with a recent note from Fundstrat's Tom Lee, who pointed out that institutions have substantially increased their cash balances over the past two weeks. Lee believes there's $4.5 trillion in cash that could serve as "firepower" to drive the market higher in April.

Investors favored the industrials and materials sectors while dumping stocks within the communication services sector, BofA's flow data showed.

The overall selling of stocks near record highs suggests euphoria has not yet taken over the market, which represents a bullish signal for contrarian investors.

That view is backed up by BofA's Bull/Bear indicator, which still remains solidly below the level that would generate a sell signal for the stock market. Additionally, the CNN Fear & Greed Index, which helps measure the current emotion of investors, recently moved out of the "Neutral" zone and into the "Greed" zone, but remains solidly below the "Extreme Greed" level.

This sets up an ideal environment for investors, according to Ark Invest Cathie Wood. In a Twitter exchange with Tesla CEO ElonMusk, Wood said, "This wall of worry is healthy: I would prefer to invest in the face of fear than exuberance!"

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