Institutions Dump Stocks For Fifth Consecutive Week; Record Selling Capitulation Hits Industrials

Over the past month (and year) the market may appear rangebound driven mostly by a handful of top stocks, but below the surface the "smart money" continues to sell.

According to Bank of America last week, during which the S&P 500 was essentially flat, BofAML clients were net sellers of $1.3bn of US stocks, following two weeks of net buying. Net sales were led by institutional clients, who have sold US stocks for the last five consecutive weeks. Hedge funds were also net sellers following two weeks of buying, while private clients were the sole net buyers. Private clients have bought US stocks in four of the last five weeks, and net buying by this group last week was the biggest in two months (chiefly due to ETFs).

But while the traditional "smart money" marginal buyers may have said enough especially after the Draghi debacle, the traditional source of stock demand remains as buybacks by corporate clients picked up last week, and the four-week average trend is tracking slightly above levels we saw this time last year.

As the chart below shows, while Private Clients have been small net buyers of stocks in 2015, hedge funds are net sellers but nothing compares to the revulsion by big institutions whose selling has been relentless.


And while the non-buyback activity last week was broadly negative, one sector saw what may have been its capiulation moment: industrials, where selling just hit record levels.

Clients sold stocks in eight of the ten sectors last week, led by Industrials and Materials. Commodity-oriented sectors have seen a consistent string of outflows in recent weeks, which could continue given OPEC’s decision on Friday. Materials has seen net sales for the last thirteen weeks, while Energy has seen eight weeks of net sales. Industrials has seen net sales in eleven of the last thirteen weeks, and net sales of this sector last week were the second-largest in our data history (since ‘08) and the largest since mid-Sept. Sales of Industrials were chiefly from private clients (whose sales of the sector were the largest in our data history—see chart below), in a week full of downgrades from our Industrials analysts on numerous railroads, truckers and machinery companies. Meanwhile, net buying of Financials last week—a week which ended with a better-than-expected payrolls number that, in our economists’ views, supports a December rate hike—was the largest in three months. Staples and Tech stocks also saw net buying, while ETFs saw the largest inflows.


Some more details by client type.

Hedge Funds:

  • Hedge funds net selling was led by Health Care and Consumer Discretionary last week. Net selling of Health Care was a reversal from recent trends for this group.
  • ETFs saw the biggest net buying from this group, followed by Industrials stocks.

Institutional Clients:

  • Institutional clients were net sellers of stocks in seven of the ten sectors plus ETFs last week.
  • ETFs saw the biggest net sales, followed by Discretionary and Materials stocks.
  • Staples, Health Care and Financials saw net buying by this group.

Private Clients:

  • Private clients’ net buying was led by ETFs (as is also true on a four-week average basis); their purchases of ETFs were the biggest since January and the fifth-largest in our data history.
  • Financials, Tech and Discretionary stocks also saw net buying by this group.
  • Net sales were the largest in the Industrials sector (biggest net sales of Industrials by private clients in our data history).

Corporate Clients:

  • Corporate buybacks were largest Tech and Staples last week, with Tech buybacks picking up relative to recent trends.
  • Meanwhile, Financials buybacks have decelerated relative to their four-week average trend.

* * *

Some other notable flows:

  • Mid-caps saw net sales by institutional clients, private clients and hedge funds alike last week, with net buying of mid-caps by our clients the largest in eight months. No size segment saw net buying by all three groups.
  • Materials and Utilities saw net sales by all three client groups last week; no sector saw net buying by all three.
  • Pension fund clients sold stocks for the fifth time in six weeks, after the prior week’s net buying. Net sales were chiefly due to ETFs and Discretionary stocks. Financials and Health Care stocks saw the biggest net buying. See pg 9 for details