Over the past five month, we have been dumbfounded by the relentless selling by “smart money” clients of Bank of America, who until a week ago, had sold stocks for an unprecedented 21 out of 22 consecutive weeks. As BofA reported last week, “BofAML clients sold US stocks for the third consecutive week (and in 21 of the past 22 weeks), led by institutional clients’ sales.”
In BofA’s latest report on client activity, we find that in the best week for stocks in years, even the smart money joined the buying scramble:
“last week, during which the S&P 500 rallied 3.2% (its best weekly return year-to-date), BofAML clients were net buyers of US stocks in the amount of $824mn, following three weeks of net sales.… clients were buyers of the post-Brexit dip after selling stocks the majority of weeks since January. Net buying was led by hedge funds, who have now bought stocks for four consecutive weeks, while private clients were net buyers for the first week since February. Institutional clients were net sellers, as they have been for the majority of the selling streak this year. Small, mid and large caps all saw inflows.
Putting the recent move in perspective, however, shows just how vast the recent derisking has been:
However, what caught our attention was snot activity by client, but rather by corporations: as BofA reports, “buybacks by corporate clients accelerated for the second week to their highest level since mid-March, though buybacks for the full 2Q were their weakest in six quarters (and the weakest of any 2Q since 2011).”
Still, putting it in context, this is who bought, and who sold, stocks in the second quarter. The buying “outlier” sticks out like a sore, debt-funded, thumb.
Confused? It’s simple: the slow motion LBO of the market by the market continues, as more debt is issued fund stock buybacks and push stocks briefly, and artificially, higher, even as corporations lever themselves up to all time highs now that the even the merest risk of rising rates has been buried for years to come.
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