As we wrote yesterday when reviewing the latest note from JPM’s Mislav Matejka, according to the JPM strategist not only had the window to buy stocks into the torrid S&P500 rebound closed, but traders should “start fading it within days” as JPM stuck “to the overriding view that one should use any strength as an opportunity to reduce equity allocation.”
Today, when reading the latest report by BofA’s equity and quant strategy team looking at what the “smart money” – institutions, hedge funds and private clients – are doing, we find that JPM’s advice was heeded, and the rally was indeed sold with reckless abandon.
From BofA:
Last week, during which the S&P 500 rallied another 1.8%, BofAML clients were net sellers of US stocks for the first time in five weeks, in the amount of $1.2bn. Net sales were led by hedge fund clients, who had previously been net buyers for the prior five weeks, while private clients and institutional clients were also net sellers. (Institutional clients have alternated between buying and selling in recent weeks, while private clients have been sellers for the last three weeks.)
Perhaps just as notable is that according to BofA, buybacks by corporate clients decelerated last week to their lowest level year-to-date, but on a four-week average basis buybacks are well above last January’s levels.
In other words, just as we suggested yesterday, much of the February buybacks expected by Goldman’s David Kostin to come to the rescue of the market, have been pulled forward into January, leaving far less dry powder available for the month of February.
What was the smart money selling?
Net sales last week were chiefly in large caps, while small caps also saw outflows; clients continued to buy mid-cap. Previously, all three size segments had seen net buying every week of 2016.
Among the details, one sector stands out: recent hedge fund darling, the healthcare sector, is seeing a furious exit by existing holders with sales “the biggest in seven months and the third-largest in our data history” as what worked until now no longer works. Tech was also slammed and sakes were “the largest in fifteen months and the fourth-largest in our data history.”
Net sales last week were led by Tech and Health Care stocks, despite overall 4Q earnings for these sectors coming in better than expected. Health Care—which has been one of the most crowded sectors within the S&P 500—was the worst-performing sector last week, and we’ve noted that revision and surprise trends have been rolling over for this sector. This is the only sector with a multi-week net selling trend, and outflows from Health Care stocks last week were the biggest in seven months and the third-largest in our data history (since ’08), led by hedge funds. Sales of Tech were the largest in fifteen months and the fourth-largest in our data history, led by institutional clients. Energy stocks saw the biggest net buying by our clients last week amid the rally in oil prices; with inflows from all three client groups. This sector has now seen four consecutive weeks of buying by our clients, suggesting increasing conviction that oil has bottomed. Financials stocks also saw net buying for the fifth consecutive week amid the sell-off in this sector, while clients also continued to buy Telecom stocks for the fifth week.
But nobody sold more than the very pinnacle of smart money: hedge fund investors, where “net sales last week by hedge funds were the biggest in nearly two years and the fourth-largest in our data history. This follows near-record levels of net buying by this group in early January.”
One final observation:
“overall for the month of January, clients were net buyers of single stocks, while ETFs saw more muted net buying. This would be the first year in our data history (since ’08) that clients bought single stocks.”
A return to normalcy perhaps?
Finally, while weekly flows tend to be notoriously volatile, the long-term trend across all three investor classes are ver clear.
via Zero Hedge http://ift.tt/1o3bYt7 Tyler Durden