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Smart Money Not Buying The Santa Rally

By Tyler Durden

Last week, when the S&P rallied 2.8%, the smartest money in the room sold. At least, that’s what happened according to BofA’s equity and quant team, which provides a weekly snapshot of what its clients do in any given period.

Here are the details:

BofAML clients were net sellers of US stocks for the second week, in the amount of $0.7bn.  Net sales were chiefly due to institutional clients last week, who have sold stocks for eight consecutive weeks. Private clients were also small net sellers for the second week. Hedge funds were the sole net buyers. Net sales were in both large and mid-caps, while small caps saw net buying for the third time in four weeks (with inflows into this size segment from hedge funds, private clients and institutional clients alike last week).

The breakdown

BofA’s clients were not the only ones who sold: “our colleagues who track EPFR flow data have noted flows out of the US but into Europe and Japan in recent weeks.”

What did clients buy, or rather sell? “Single stocks in all ten sectors saw net sales, while ETFs saw net buying.”

 Clients sold single stocks across all ten sectors last week, led by the cyclical sectors of Industrials, Tech and Financials. Defensive sectors generally saw the smallest outflows, which is true on a four-week average basis as well. Only ETFs saw net buying. Despite the bounce in oil prices last week, stocks in commodity-oriented sectors continue to have the longest and most consistent net selling trends as clients likely wait for evidence of a sustained recovery: Energy has seen net sales for the last eleven weeks, Materials has seen net sales in 15 of the last 16 weeks, and Industrials has seen net sales in 14 of the last 16 weeks.

Institutional clients were the biggest net sellers last week, which is true on a four-week average basis as well. Private clients also sold stocks, but remain net buyers on a fourweek average basis. Hedge funds were net buyers last week. Net sales were in large and mid-caps, while small caps saw net buying.

The rolling four-week average trend by sector:

  • Net buying: None.
  • Net selling: Materials since late June; ETFs since mid-Sept; Health Care since early Oct.; Consumer Discretionary and Energy since mid-Oct.; Telecom and Industrials since late Nov; Utilities since early Dec.; Staples, Financials and Tech since mid-Dec.
  • Notable changes in trends: None

Was the traditional buyer of stocks, companies themselves, who was on the other side? It doesn’t look like it: “Buybacks by corporate clients decelerated vs. the prior week, and YTD are tracking over $40bn, below last year’s record $45bn.”

So the smart money was selling, companies were not buying back, and stocks rallied nearly 3%. One wonders just who was buying.

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