On Tuesday, in "Even The Dumb Money Is Dumping Stocks Now," we highlighted weekly flows data from BofAML which showed that not only were hedge funds and institutional clients (still) selling in the five days ended 8/07, but private clients were net sellers for a second consecutive week, dumping the most equities in a year.
But not everyone was selling last week.
Stocks still benefited from the perpetual corporate management bid that’s helped to sustain the equity rally since the flow from that other price insensitive buyer (the Fed) tapered off.
Given the above - and given everything we’ve said this year about debt-funded corporate buybacks buoying equities - no one should be surprised that Wednesday’s magical levitation came courtesy of US corporations. Here’s Bloomberg with more:
Who did the buying as U.S. stocks staged the biggest turnaround in three years? The companies that issued them.
The Goldman Sachs Group Inc. unit that executes share buybacks for clients had its busiest day since 2011 on Wednesday, according to a note from the firm’s corporate agency desk. Based on the value of equities repurchased, volume handled by the bank set a record. The note was confirmed by spokeswoman Tiffany Galvin.
Corporations have emerged as one of the biggest sources of fresh cash in the stock market, eclipsing even mutual funds with more than half a trillion dollars spent last year, according to data compiled by S&P Dow Jones Indices. They swooped in and bought again on Wednesday as the Standard & Poor’s 500 Index flirted with its largest two-day selloff since January.
In short, today should serve as a real-world example of what GMO's Ben Inker said in the firm's latest quarterly letter: "...in order to see massive changes in the price of a security, you don’t need the price-insensitive buyer to become a seller. You merely need him to cease being the marginal buyer. If price-insensitive buyers actually become price-insensitive sellers, it becomes possible that price falls could take asset prices significantly below historical norms."
Oh, and by the way, here's what we said early in the session:
Quick, add more cash to the AAPL buyback.
— zerohedge (@zerohedge) August 12, 2015