Last week, following the Fed's latest rate hike punt, stocks soared higher after realizing that not only is the Fed not ready to hike, but it will almost certainly not hike in September nor December (as the country will be covered by GDP crushing snow then). And despite some modest selling on Friday as the first images of Greek ATM lines spread, the S&P still finished nearly 1% higher for the week.
Any other week this would have been a perfectly normal event but according to Bank of America last week, this was not any other week. In fact, according to BofA's Jill Hall, "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."
What was sold? Pretty much everything, although mostly large caps:
- Net sales last week were chiefly due to large caps (biggest sales ever of this size segment), though small and mid-caps also saw outflows.
- Institutional clients were broad-based net sellers of stocks in all ten sectors last week, led by Financials and Tech. Only ETFs saw (small) net buying by this group.
- Hedge funds were net sellers of eight of the ten sectors last week, led by Health Care and Materials. Only Tech and Utilities, along with ETFs, saw net buying by this group.
It wasn't just the mutual funds: "Hedge funds were net sellers for the ninth consecutive week." Who was buying? Sadly, the dumb, "retail" money: "private clients bought stocks last week following the previous week’s net sales."
Then again, as the chart below shows, the "retail" money is hardly that dumb these days, and has been consistently selling all throughout the rally, leaving the "smart money" scrambling who to sell to, and also leading to such amusing demands as Carl Icahn telling AAPL to please buy his stocks. Because nobody else will...
Actually it's not just retail that no longer "buys", both literally and metaphorically, the market. Pension funds have also seen their cumulative stock purchases go back to levels last seen in 2007!
What is perhaps even more surprising is that on a rolling basis, every client class has been a net seller:
- Hedge funds are net sellers of US stocks on a four-week average basis, which has been the case since late April. They are also net sellers YTD, after selling stocks in 2014 as well.
- Institutional clients are now net sellers of US stocks on a four week average basis, after being net buyers since late May. They were the biggest cumulative net sellers in 2014, and are also net sellers YTD.
- Private clients are net sellers of US stocks on a four-week average basis, which has been the case since late April. They were cumulative net sellers of stocks in 2014, but are net buyers YTD.
Which begs the question: how is the market just shy of all time highs... we ask rhetorically, of course...
So was this all a pre-Grexit cash out panic? Perhaps, but it also appears to have been quite targeted, with an emphasis on what has become the biggest industry bubble within the broader market: health care. In fact, healthcare selling was the biggest ever:
Net sales last week were broad-based, with stocks in all ten GICS sectors seeing outflows, led by Health Care and Financials. Net sales of Health Care were actually the largest in our data history (see our Chart of the Week, below), and the sector continues to have the longest net selling trend at six consecutive weeks. It has also seen the largest outflows year-to-date. This sector has generally outperformed the market over the last four years. The more defensive sectors of Staples, Utilities and Telecom saw the smallest outflows last week; only ETFs saw net buying.
The two Consumer sectors, Financial, Health Care, Energy, Industrials and Telecom saw net sales from institutional clients, private clients and hedge funds alike last week. Only ETFs saw inflows from all three groups.
Finally, in the New Normal, it is no longer the smart, or dumb, money that is the marginal price setter but corporations themselves, via record amounts of stock buybacks. This is how they fared:
Energy stocks have notably seen a tick-up in buybacks by our corporate clients over the last three weeks, with <$6mn per week in Energy buybacks year-to-date through June but between $40-100mn each of the last three weeks.
Buybacks last week were largest within the Financials sector, followed by Consumer Staples. This was also true the previous week.
Indeed, with everyone else selling, it was corporations that continued their buyback ways.
And the worst news: with everyone else dumping stocks at a (near) record pace, the buyer of last resort, corporate buybacks, are about to enter that most dreaded period of the quarter: the blackout period that surrounds earnings releases. As such, starting this week and continuing for the next month, stock repurchases will grind to a halt.
One can hope that the Bank of Japan and the Swiss National Bank have some serious firepower left to pick up the slack: they are now, quite literally, the buyers of last resort.