"Clients Still Don’t Believe The Rally" - Smart Money Sells Stocks For Record 18th Consecutive Week

Last week, when BofA reported that its "smart money" clients had sold stocks fora record 17th week, the bank offered the following silver lining.

Sales have now been slowing for the last four weeks, with last week’s net sales of $218mn notably the smallest since late February. Institutional and private clients continued to sell US stocks for the 13th and 15th consecutive weeks, respectively, though net sales by institutional clients were the smallest since mid-February. Hedge fund clients were net buyers, after selling stocks the previous four weeks. Net sales were entirely in mid-caps last week, as small caps saw net buying for the second week, and large caps saw net buying for the first time since January.

We cautioned that this may be overly optmistic for two reasons: selling by hedge funds, institutional and private clients had slowed down in the past only to spike up again shortly thereafter, and that the ongoing liquidations are less likely an indication of overall market sentiment, as much as pent up redemption requests and forced selling as investors demand their cash at a time when the market has failed to achieve new highs for over a year.

We were right, and as BofA's Jill Carey Hall writes overnight, "last week, BofAML clients were net sellers of US stocks for the 18th consecutive week, continuing the longest uninterrupted selling streak in our data history (since ’08)."

More importantly, she admits that as expected, "sales accelerated last week to $1.6bn, the largest net sales since late April after sales had slowed in the prior three weeks. Clients still don’t believe the rally; persistent negative equity sentiment has been echoed in EPFR flow data as well as by our Sell Side Indicator. Net sales were led by institutional clients last week, private clients and hedge funds were also net sellers. Clients sold stocks in all three size segments."

Of note, buybacks by corporate clients continue to be below recent levels, were similar to the prior week’s levels (about 500mn), below the typical May weekly average of about $900mn. Cumulative buybacks by corporate clients YTD are tracking  slightly above levels we saw by this point last year, though below 2014’s record levels."

Data on weekly flows by sector, client & size

Clients sold single stocks in all sectors except Consumer Staples last week, led by Health Care and Financials. In addition to Staples stocks, just ETFs saw net buying. This was a reversal from the prior week, when clients had been net buyers of stocks in all but two sectors (Discretionary and Industrials). Industrials currently has the longest net selling trend, at four consecutive weeks, followed by Discretionary at three consecutive weeks.

And Health Care has notably seen outflows in 12 of the last 13 weeks as clients resumed sales of this sector last week; uncertainty over the US election and a positioning unwind have hurt Health Care stocks this year. No sector has a long-term net buying streak; Staples is the only sector which has seen two consecutive weeks of inflows.

Institutional clients were the biggest net sellers last week, which has been true for the majority of the selling streak, while private clients and hedge funds were also net sellers. Corporate buybacks were similar to the prior week’s levels. Clients sold stocks in all three size segments last week.


Rolling four-week average trends by client type:

  • Hedge funds have been net sellers on a 4-week average basis since early Feb.
  • Institutional clients have been net sellers on a 4-week average basis since early Feb.
  • Private clients have been net sellers of US stocks on a 4-week average basis since early January.
  • The four-week average trend for buybacks by corporate clients suggests a bigger slowdown in buybacks than what we have seen the last few years at this time

And some more notable flows:

  • Health Care, Energy and Financials saw net selling by institutional clients, hedge funds and private clients alike last week. No sector saw net buying by all three groups.
  • While institutional clients as a group led the net selling last week, pension fund clients—a subset of institutional—were net buyers last week for the first time in five weeks. Net buying was led by Health Care and Consumer Discretionary stocks; their biggest net sales were of Industrials and Materials. This group has remained a net buyer of US stocks year-to-date. See Pension fund flows for details.
  • Clients continued to “sell in May” (after selling in February, March and April)—Chart 1 below shows the clients sold stocks in all sectors except Telecom last month; they were also small net buyers of ETFs. All three size segments saw outflows last month, and all three client groups were sellers, led by institutions


What will get the "smart money" clients out of their rut? We don't know, however what we do know is that neither the biggest short squeeze in history nor contstant predictions of all time highs coming from every pundit have succeeded. Perhaps a better question is what happens when whoever it is that is pushing stocks higher, and "buying the market", stops.