Hedge Funds Are Now Buying Stocks While Retail Investors Sell

After a slow, steady grind higher throughout the month of January, stocks hit a rough patch at the end of last week. Since then, the S&P 500 has been trading sideways.

We have noted how, based on weekly data from BofA Merrill Lynch, it appears that hedge funds have been sellers of stocks for the last several weeks, while on the flip-side of the coin, individual investors have been buying up stocks at a rapid pace over the same timeframe.

Now – coincident with the “rough patch” the S&P 500 has run into (the market hasn’t really gone down, just sideways) – those roles appear to have reversed.

According to the latest data from BofA Merrill Lynch, hedge funds became net buyers of stocks, while individual investors have started selling – taking profits, BofA suggests.

The chart below shows the role reversal:

BAML client flows net buys stocks

Photo: BofA Merrill Lynch

Which stocks are hedge funds buying? BofA says activity is concentrated in consumer discretionaries, industrials, energy, and healthcare:

hedge funds net buys by sector baml client flows

Photo: BofA Merrill Lynch

Meanwhile, the biggest selling by private clients was concentrated in consumer discretionaries, tech, financials, and industrials.

Thus, it looks like hedge funds were willing to take the other side of those trades in at least two instances.

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