The S&P 500 rallied last week as investors continued to grab up U.S. equities, led by institutional clients. The benchmark index climbed 1.4% as Bank of America Merrill Lynch clients were net buyers of U.S. stocks for the third week in the row, purchasing $1.2 billion worth of U.S. equities to boost the struggling S&P 500.
Unusual trends among private clients
In their latest “BAML Equity Client Flow Trends” report, strategists Jill Carey Hall and Savita Subramanian report that hedge funds were net buyers of U.S. stocks for the fifth week in a row.
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Meanwhile, private clients actually sold stocks for the second week in a row. Private clients’ sales reached their highest level in about a year and a half. However, exchange-traded funds led this group’s sales as private clients bought up single stocks but sold ETFs over the last three weeks. The BAML team said this is the first time this has been observed since 2009. Further, ETF sales by this group reached the highest level since they started keeping data in 2008.
Buybacks by corporate clients were about flat with the previous week’s levels and are tracking higher than the level noted a year ago.
Investors spurn Health Care stocks
The BAML team also found that last week’s net buying broadly included large, mid and small cap stocks, a trend that was also observed in previous weeks. Additionally, the firm’s clients bought stocks in every sector except for Health Care, marking the third week in a road in which they bought stocks in nine of the S&P 500’s ten sectors, although the sector that witnessed outflows has changed from week to week.
Last week the sector that was left out of all the buying was Health Care. The BAML team reports that the sectors with the longest trends of net buying have usually been domestic except Financials, which was among the favored sectors in recent weeks. The other three were Consumer Staples, Telecommunications and Utilities, all of which have witnessed four weeks of net buying.
Financials the favorite sector
The Financials sector saw the biggest inflows of all the sectors last week as the largest U.S. banks and financial firms released their fourth quarter earnings reports. The results were mixed but generally better than expected. Buying in the sector reached the highest level since August among BAML clients and also was the seventh highest level since the firm started keeping data in 2008.
Interestingly, BAML also noted that last year marked the third consecutive week of inflows for the Energy sector after a selling streak that lasted 12 weeks. Hall and Subramanian said this suggests that their firm’s clients might believe oil prices are bottoming out.