Bank of America (NYSE:BAC) strategist Jill Carey Hall analyzed the bank's client flows to note a major slowdown in buybacks by corporate clients.
Buybacks were at the lowest weekly level in the past 12 months, and down YoY for the first time in over a year.
While the $ amount of buybacks in 1Q was above other 1Qs post-crisis, as a % of S&P 500 market cap, 1Q buybacks were the lowest in five years. Meanwhile, 1Q S&P 500 buyback announcements (as a % of mkt. cap) "while similar to 1Q21 levels" were 50% below the pre-COVID 5-year avg, Carey Hall said in a client note.
The combination of strong supply (IPOs) and less demand (buybacks) suggests a reversal of a multi-decade bullish trend for US equities (shrinkage).
As a result, Carey Hall says dividends may dominate buybacks in 2022 amid several risks - politics, valuations, rising demand for dividends - to the latter.
Last week, BofA's clients were selling US equities ($3.4 billion) with clients selling both stocks and ETFs. Once again, hedge funds were leading the way, followed by institutional clients. On the other hand, retail clients were buying stocks once again.
"While retail flows have decelerated, the group remains net buyers. Retail flows have been positive all but one week (3/14) YTD. Our retail client flows have been a positive 'not contrary' indicator of subsequent near-term S&P 500 returns, and actually a slightly better signal than HF flows," Carey Hall added.
On a sector basis, clients sold stocks in six of the 11 sectors, led by Consumer Discretionary and Tech. Conversely, Real Estate, Materials, Energy, and Industrials saw inflows.
"Sales of Consumer Discretionary stocks have accelerated in recent weeks and last week were the largest ever in our data history since 2008. We have been cautious on labor-intensive Consumer Discretionary stocks as wages have continued to rise and the sector currently ranks worst in our tactical S&P 500 sector ranks and has been deteriorating in rank in our small-cap sector ranks," the strategist concluded.
By Senad Karaahmetovic