The question of who was the marginal buyer of equities in mid February and into March appears to have been answered. It was Macro hedge funds whose correlation of returns to the S&P 500 went from a negative 0.58 on 2/15 to a very high positive 0.75. It would appear that macro funds, just as they did in Q1 of 2011, went all-in. However, just as occurred in Q1/Q2 2011, the ebbing macro backdrop of the last few weeks, as evidenced by the Citi Economic Surprise Index tumbling rapidly, appears to have stymied their risk appetite and, again just as in 2011, as the surprise index rolled over, so Macro funds started to exit the equity market very rapidly. In fact, in the last two weeks the 30-day correlation between the Macro hedge fund return index (HFRXM) and the S&P 500 (SPX) has crashed back from +0.75 to -0.55 currently as macro funds clearly shift to a negative stance of US equities in general - selling into the momentum strength of the last few weeks. As we pointed out a week ago, institutions were indeed all-in, but it seems the reality of recent macro data and European risk flares is perhaps rapidly darkening the rose-colored lens with macro-funds the first to flee.
The dark-red line is a smoothed average of the 30-day correlation between Macro hedge fund and S&P 500 performance and tends to turn (with a lag) with US Macro data surprises (positively and negatively). The light red line is the actual correlation and as the green and red arrows show it has plunged in the last week or two - just as it did in 2011 - following a rollover in the ECO surprise index...
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Chart: Bloomberg