The S&P 500 rose more than 1% last week, with hedge funds driving those gains. However, there was still plenty of selling to go around, as Bank of America Merrill Lynch reports that its clients were net sellers last week, with hedge funds being the only category of client to buy.

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Twelfth week of selling U.S. equities

[drizzle]Strategists Jill Carey Hall and Savita Subramanian said in their September 27 “Equity Client Flow Trends” report that last week was the twelfth consecutive week their firm’s clients were net sellers of U.S. equities, this time to the tune of $900 million. Cumulative net sales of U.S. equities by BAML clients year to date have reached $32 billion, their highest levels since the financial crisis, they report, and this trend isn’t exclusive to their firm’s clients.

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They report that EPFR data on global fund flows indicates that only Europe is seeing more equity outflows than the U.S. this year.

Hedge funds buy single stocks

Just like the week before, BAML’s institutional and private clients were net sellers of stocks, and hedge funds were net buyers. Hedge funds have been net buyers since early this month, while institutional clients have been net sellers since early February and private clients have been net sellers since January. So far this year, institutional clients have led the way in net sales of stocks. Also like the previous week, Hall and Subramanian observed that no size was immune from the stock sales as their firm’s clients dumped large, mid and small caps.

BAML clients unloaded single stocks in nine of the S&P 500’s 11 sectors last week, with Health Care and Tech seeing the biggest outflows.

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The strategists reported that the Tech stock reversal was the biggest such recent reversal, and outflows from Health Care stocks reached their highest level in five months. The two sectors with inflows last week were Materials and Telecom, although the biggest inflows were into exchange-traded funds.

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Pain for Consumer Discretionary unlikely to end soon

Hall and Subramanian said no sector has a buying streak lasting multiple weeks, although their firm’s clients have bought Telecom stocks in ten of the last 11 weeks.

Consumer Discretionary is still the most-shunned sector as it has racked up outflows for the last 13 weeks. In fact, they said this is the longest selling streak for this sector since they started keeping records. However, they warn that the net sales within Discretionary may not end any time soon because it remains the most crowded sector among mutual funds. They’re also cautious on the sector for other reasons.

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Institutional clients, private investors and hedge funds all sold Health Care, Discretionary and Real Estate stocks, while no sector recorded net buying by all three client types, the BAML team reported.

Corporate buybacks plunge

They added that corporate buybacks appear to be drying up as they decelerated again last week. In fact, buybacks are on track for their weakest third quarter since 2010, they report. They believe that high valuations could be one major reason for this because buybacks are more rewarding at lower valuations.

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Additionally, they observed a continued flight from active funds to passive ones based on global EPFR data. Other headwinds to active funds include poor performances for most of them and investors who are becoming more sensitive to fees.

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