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There was a bit of confusion earlier this week when just as JPMorgan head of global strategy, Marko Kolanovic, was telling one set of bank clients to “buy the dip” (even as his boss Jamie Dimon was predicting a dramatic and risk swoon-inducing tightening in financial conditions, expecting more than 4 rate hikes), another veteran JPMorgan advisor, Bob Michele, who is the asset management group’s fixed-income chief, said just the opposite and urged the bank’s clients to “hide in cash”, warning that the Fed put could be as much as 30% lower in the S&P: “The Fed would let the markets drop much further if their primary concern was battling inflation,” Michele said. “The strike of any put is likely to be declines of 15%–30% in equities, not 2%–3%.”

And while Michele may well be right, it is now clear that most retail and hedge fund investors agreed with Kolanovic, and rushed to buy the dip both last week around the time of the uberhawkish FOMC Minutes, and in the days following, while institutional investors were actively selling their holdings.

As Bank of America quant Jill Carey Hall wrote overnight, the bank’s clients were “net buyers of US equities the first week of 2022($0.5B), during which the S&P 500 fell 1.9%. Clients bought both ETFs and stocks.”

As she further observes, retail and hedge funds clients led the buying last week even as institutional clients began the year with their biggest weekly outflows since mid-January of last year.

Drilling down, the bank’s clients bought stocks across all three size segments (large/mid/small).

A breakdown of total client activity by sector.

What is notable, and as Goldman recently observed, is that retail clients have typically been aggressive buyers in January while other groups have been sellers. According to Hall, January has been the strongest month, on average, for US equity inflows by BofA clients, and has seen net buying in 10 of the last 14 years.

This confirms what we reported yesterday, citing JPM quant strategist Peng Cheng, who noted that retail bought $1.07 Billion on Tuesday, the third consecutive day of greater than $1 billion buying; and in the 93rd percentile of all days. Putting this in context, Black Friday net buying was $1.6bn, which was the highest on record.

And while retail and hedge funds were BTFD, corporations were just as busy waving it in, and according to Bank of America, buybacks by corporate clients began the year strong, above early Jan. levels for the last few years including 2019 (pre-COVID), led by Tech, Health Care and Financials.

Expect more buybacks: they typically accelerate in Jan/Feb during earnings (chart below) after seasonal weakness at year-end – though Dec’21 was stronger than usual (likely pull-forward ahead of potential tax reform risk in 2022), suggesting potentially less of a pick-up.


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