Bank of America: “Our Clients Bought The Dip”

Having become a habitual response among the investing community, with sellside research reports dedicated to the phenomenon of buying the dip which no matter what the Fed does, refuses to go away…

…  it will probably not come as a surprise that as Bank of America writes in its latest weekly client flow trend report, following last Tuesday’s sharp selloff in stocks, “hedge funds & retail bought the dip“, in the words of the bank.

As BofA’s Jill Hall elaborates, last week, during which the S&P 500 fell 1.4% (the biggest weekly decline since early November), the bank’s clients resumed their post-election buying streak after a five-week break.

Among BofA’s main “smart money” clients, both hedge fund and private clients were net buyers for the second straight week, while institutional clients sold stocks for the sixth week.

Clients bought a little of everything: large, mid and small caps alike all saw inflows for the first time since early January, as a slowing in sales of single stocks was coupled with a pick-up in ETF inflows.

Predictably, Hall adds that “we could see more buying on dips by clients, as the strategy has worked in recent years and we expect to see both higher volatility and higher stock prices this year.” For those worried they may have missed the last of the BTFD opportunities out there, don’t worry: according to BofA, “the end of a bull market typically sees capitulation-like inflows, which have so far been absent, and the “Great Rotation” has yet to occur.“

BofA lays out the other notable flows in last week’s action, among which broad-based buying of small caps, ETFs

• Net purchases by hedge funds last week were the biggest since early January.
• Hedge funds, institutions and private clients all bought ETFs and small caps, while all three sold the defensive sectors of Staples Utilities, along with Materials.
• Pension fund clients were net buyers of US stocks after two weeks of selling, with inflows across all three size segments. Their biggest purchases were of Industrials and Energy stocks, while ETFs and Tech stocks saw the biggest sales by this group last week. For more details, see Pension fund flows.
• Buybacks by our corporate clients ticked up to their highest levels since early December, led by a pick-up in Tech buybacks. This helped bring cumulative YTD buybacks in-line with 2015 levels over the same period, but below 2014 and 2016 levels and with trailing 52-week buybacks still their lowest in nearly four years.

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Below is a breakdown of the rolling four-week average trends by sector:

• Net buying: ETFs since early Oct 2016; Materials since late Feb. 2017; Staples since mid-March 2017.
• Net selling: Health Care since mid-March 2016; Consumer Discretionary since mid- Jan 2017; Real Estate (not shown—flows since Sept. 2016) since late Jan. 2017; Industrials since mid Feb. 2017; Energy since late Feb. 2017; Tech since early March 2017; Utilities since mid-March 2017.
• Notable changes in trends: Telecom is now seeing net buying after net sales since mid-February 2017.