BofA: Our Big Institutional Clients Have Capitulated And Are Diving Into Stocks

Every week, the BofA Merrill Lynch equity strategy team breaks out data on how much stock clients are buying and selling.

Over the past few weeks, we've highlighted how while BAML's retail clients have continued to increase their exposure to the stock market, week in and week out, BAML's big institutional clients have been doing just the opposite.

Last week, those institutional clients unloaded stocks in size, marking the biggest weekly sales since 2008.

This past week, says BAML equity strategist Savita Subramanian, it appears the institutions have capitulated – because they are now buying stocks after being such big sellers.

In a note to clients, Subramanian writes:

After capitulation, institutions join private clients in net buying

After near-record net sales by institutional clients in mid July, and following five weeks of outflows, institutions became net buyers of US stocks this past week. Flows at extremes can signal a shift in trends, as late last year we saw capitulation by private clients which preceded two months of net buying in by this group. And outflows by institutional clients [year-to-date] are now approaching full-year 2008 and 2010 levels, after which they were net buyers in 2009 and 2011.

Private clients – who tend to exhibit the stickiest flow trends of the three groups – were net buyers last week for the ninth consecutive week. While their inflows were chiefly due to ETFs, five of the ten GICS sectors still saw net buying by this group last week. Private clients have largely shunned single stocks over the last several years, and in our view, continued purchases of single stocks would suggest ongoing confidence in the bull market. Overall, BofAML clients were net sellers of US stocks last week for the third consecutive week, though the amount (-$843mn) was muted relative to previous weeks. Hedge funds drove overall net sales, and have been net sellers of stocks for the past three weeks.

The chart below shows the reversal in institutional selling this past week. Institutional clients purchased $262 million of stock in the week ended July 26 after selling $1.46 billion the previous week, and unloading $1.26 billion the week before that.

Institutional clients have averaged $650 million in sales per week over the past four weeks, $392 million in sales over the past 12 weeks, and $177 million in sales over the past 52 weeks.