"Smart Money" Sold Stocks For Third Consecutive Week To Corporate Buybacks, Scrambling Shorts

Last week, in the aftermath of dovish announcements by first the ECB and then the PBOC, the S&P500 jumped another 2.1% rising to its best level since early August.

But who was buying? We now know who wasn't: according to BofA "BofAML clients were net sellers of US stocks for the third consecutive week, in the amount of $1.7bn. Similar to in the prior two weeks, institutional clients, hedge funds, and private clients alike were all net sellers."

 Institutional clients have sold US stocks for the past eight weeks, and remain the biggest sellers year-to-date (in part hurt by the continued rotation out of active funds). Hedge funds and private clients have both sold US stocks for the last three weeks; even the one recently bright, private clients, turned sour and after having been net buyers of global equities, their buying waned in recent weeks. Large, mid and small caps all saw net sales last week, as was also the case in the prior two weeks.

The 4-week net buying, and lately selling pattern is shown below:

... and summarized in the following table:


Broken down by sector, the selling was broad-based: "Clients sold stocks in nine of the ten sectors last week, led by Financials. Tech saw the next-largest net sales, despite strong earnings results from the group last week. In addition to ETFs, only Health Care—which saw a late-week rebound—saw net buying by our clients last week. Clients have now bought Health Care stocks for the past two weeks; this sector has still seen the biggest net sales by our clients year-to-date. Industrials, Materials and Financials continue to have the longest net selling streaks by our clients (for the last seven consecutive weeks), with outflows coinciding with concerns over global growth and uncertainty over whether the Fed will tighten this year. Institutional clients, hedge funds and private clients were all sellers of stocks last week, and outflows were broad-based across size segments as well."


Some more details by sector:

Hedge funds were sellers of stocks across seven of the ten GICS sectors last week, led by Energy, Financials and Industrials. They also sold ETFs.

Only Tech (which saw strong earnings results last week), Consumer Discretionary and Telecom saw net buying by this group.

Institutional clients were broad-based net sellers of stocks across all sectors except Health Care last week, led by Consumer Discretionary and Financials.

ETFs saw net buying by this group, consistent with recent trends.

Private clients also sold stocks across most sectors last week, led by Tech and Consumer Staples (despite good earnings results from the former).

Only Energy and Telecom stocks, in addition to ETFs, saw net buying –consistent with recent sector flow trends for this group.


Actually, it was even worse: While traditionally Pension funds have been net buyers of US stocks in 2008, 2009, 2010, 2012 and 2014, even they turned sour on stocks into the torrid rally of the past few weeks:

Pension fund clients sold stocks last week after two weeks of buying; this was only the second time in thirteen weeks that they were net sellers. Net sales were led by ETFs and stocks in Staples and Tech. Discretionary, Industrials and Materials saw net buying. Net sales were driven by large caps, while small caps saw net buying by this group.

4 out of 4 sellers.

Putting it all together, here is the cumulative selling across the three main institutional client groups:


* * *

But if everyone was selling, why did the market surge?

Well, the previously documented price-indescriminate short squeeze shows no signs of abating, as more and more shorters are forced to cover bearish bets simply because other shorts are covering bearish best (something for which the "smart money" is most grateful as it provides a bid to sell into).

And then there were the buybacks. Remember how everyone said buybacks are in a blackout period? Well, they were wrong!

Buybacks by corporate clients accelerated last week, and while they remain lower than they were for much of this year (October has historically been a seasonally week month for buybacks ), they are tracking above levels we saw this time last October. Buybacks are on track for their second-biggest year since the crisis, following last year’s record.

And the detail: Corporate buybacks were largest within Consumer Staples and Financials last week. Buybacks in these two sectors were higher than the four-week average trends.


Summarizing all the above.