Does Not Compute: "Smart Money" Clients Sell Stocks For 12 Consecutive Weeks

One week ago we were shocked to learn that no matter what the market was doing, whether it was going, down or sideways, Bank of America's "smart money" (institutional, private and hedge funds) client, simply refused to buy anything, and in fact had continued to sell stocks for a near-record 11 consecutive weeks.

The selling continued despite what we said, namely that "at this point it was about time for the selling to stock, if purely statistically, otherwise said "smart money" would be sending the clearest signal yet that the market rally from the February lows is nothing but a huge gift to sell into."

One week later we were convinced that finally the selling would end. It did not.

As BofA reported overnight when looking at the latest trading activity by its smart money clients, last week, during which the S&P 500 was up 1.6%, BofAML clients were net sellers of US stocks for the twelfth consecutive week, in the amount of $1.36bn. Sales were chiefly in large caps, though all three size segments saw outflows.


And while "the pace of selling slowed for the second week, but persistent sales suggest to us that clients continue to doubt the market rally."

Institutional clients continued to lead the selling, while private clients have the longest selling streak (ten consecutive weeks).

At a more granular level, the one sector where net buying remains is ETFs. On the selling side, BofA gives the following color:

"Net selling: Tech since late Jan.; Staples since early Feb.; Industrials since  mid-Feb.; Energy and Financials since late Feb; Telecom, Materials and Health Care since mid- March; Consumer Discretionary since late March, Utilities since early April."

As the chart below shows, on a 4 week average basis, the selling over the past month is matched with BofA's record recorded in early 2008.

There was, however, one change: while the other two groups refuse to give in, hedge funds finally threw in the towel, and after seven weeks of sales by all three client groups, hedge funds were net buyers last week for their first time in nine weeks. Then again, this follows record net sales of US stocks by hedge funds in 1Q.


Answering the now traditional question, if everyone is selling who is buying, the answer remains the same: "buybacks by our corporate clients decelerated last week, but are in-line with what we typically see in early April (a seasonally slow period for buybacks)." Incidentally, this is what Goldman also explained last week.

And since stock buybacks are really debt-funded repurchases, what the above means is that as long as the bond pipeline is open and companies can issue debt to fund more stock repurchases, there is nothing that will hinder or stop the flow of equity holdings from "smart money" investors back to the companies that issued the stocks in the first place in the world's slowest and longest-enduring marketwide LBO.