First it was five weeks; then it was six straight weeks; then a whopping seven weeks of selling in a row even as the market rose 1.1% higher. And now, in an unprecedented for a bear market rally move, the "smart money", i.e., BofA's hedge funds, institutional, and private clients, havbe sold stocks for a whopping 8 consecutive weeks.
As BofA's Jill Hall writes, "last week, during which the S&P 500 climbed 1.4%, BofAML clients were net sellers of US stocks for the eighth consecutive week, in the amount of $1.4bn—suggesting clients still doubt the sustainability of the rally. This is the longest selling streak since Oct-Dec 2010, when clients sold stocks for 12 consecutive weeks. (Following this, they were cumulative net buyers during the first quarter of 2011 and for the year as a whole). Similar to the prior week, all three client groups (hedge funds, private clients and institutional clients) were net sellers, led by institutional clients. Net sales were chiefly in large caps, while small caps saw inflows."
Here are flows vs the market:
None of this should really come as a surprise: here are the long-term flows:
So as insiders continues to throw up all over the rally, who is buying? The usual IG debt-funded suspect of course:
Buybacks by corporate clients decelerated slightly last week, but were still elevated. On a four-week average basis, buyback activity is tracking at its highest levels in two years (see chart below), and year-to-date cumulative buybacks by our clients are 45% above year-ago levels."
Some key highlights:
- Consumer Discretionary, Consumer Staples, and Energy saw net sales by hedge funds, institutional clients, and private clients alike last week. No sector saw net buying by all three groups.
- Buybacks of Materials stocks were near record levels again last week. Materials, Discretionary and Industrials have contributed most to the YoY increase in buyback activity by our corporate clients.
- Pension fund clients were net sellers of us stocks for the third week, led by ETFs and Financials stocks. Staples
So what is happening? Simple: everyone who has been liquidating market exposure continues to do so, and only the ECB's bringing back the IG market back to life with its corporate QE, has allowed companies to keep issuing debt and use the proceeds to buy back stock, allowing sellers to find a willing buyer. In the meantime, corporate leverage is rising to never before seen highs.
This unsustainable "out of one pocket and into another" situation will continue until one day, the buyback scam finally ends, and it won't be a whimper.