Exactly one week ago, when looking at the record 14 consecutive weeks of selling by the "smart money" clients of BofA, i.e., hedge funds, institutions and private clients, we said that "maybe next week, which would mark a historic 15 weeks of consecutive smart money outflows, is when the tide finally turns, assuming the market slides here. Or perhaps, due to accelerating redemptions, it won't, and the ongoing selling deluge will continue indefinitely. Find out one week from now."
Overnight BofA revealed the answer, and as it turns out, it was the latter:
Last week, during which the S&P 500 fell 0.4%, BofAML clients were net sellers of US stocks for the 15th week, in the amount of $1.3bn. This has been the longest uninterrupted selling streak in our data history (since ’08)—previously the longest streak (in late ’10) was 12 weeks.
BofA breaks down the selling as follows: "net sales continue to be led by institutional clients, while hedge funds and private clients also remain sellers. Clients sold stocks in all three size segments last week. Corporate buybacks picked up last week, though are tracking below last year’s 2Q-to-date levels."
Unexpectedly, this week we also saw the traditionally bullish, long-only pension funds join the selling fray:
Some further details:
Clients sold stocks in seven sectors plus ETFs last week. The biggest sales were of Industrials and Materials (third-largest and second-largest in our data history, respectively), after Industrials had seen positive flows and solid earnings results the week prior. Only Tech, Discretionary and Telecom stocks saw net buying, with flows into Discretionary the largest in eight months and Tech inflows their largest since Sept. Health Care continues to have the longest selling streak (ten weeks); this sector has been hurt by a positioning unwind and political uncertainty in an election year. No sector has seen more than two weeks of buying. Year-to-date, only Telecom stocks have seen cumulative inflows, and Utilities have seen the smallest net sales—with both of these sectors helped by the fall in interest rates and a push-out in the expected timing of the first Fed rate hike.
Breaking down the rolling 4-week data by client type:
- Hedge funds have been net sellers on a 4-week average basis since early Feb.
- Institutional clients have been net sellers on a 4-week average basis since early Feb.
- Private clients have been net sellers of US stocks on a 4-week average basis since early January.
- The four-week average trend for buybacks by corporate clients suggests a seasonal slow-down in S&P 500 buybacks in 1Q (Chart 24).
Looking at the four-week average trends by sector, BofA finds that there has been zero net buying, and notes:
- Net selling: Tech since late Jan.; Staples since early Feb.; Industrials since mid-Feb.; Energy and Financials since late Feb; Materials and Health Care since mid-March; Consumer Discretionary since late March, Utilities since early April.
- Notable changes in trends: ETFs saw a reversal to net selling after net buying since early April; Telecom saw a reversal to net buying after net sales since mid- March.
Finally, now that quiet period is over, BofA confirms that corporate buybacks picked up last week, though are tracking below last year’s 2Q-to-date levels.
At this point is has become moot to ask when the smart money buying will resume, and likewise just who, aside from corporations buying back their own stocks, is actually buying. As we reported last week, last week saw the biggest fund outflow since September 2015...
... suggesting it certainly is not retail that is rushing back into stocks.
In the meantime, the only thing preventing even more smart money selling is that the broader market is not even lower, leading to even more redemptions and liquidations. That may soon change is Carl Icahn, and his record -150% net short position in the market turns out to be right.