SMART MONEY CONSENSUS (Negative Consensus/Bull Market Indicator) Heading for the exit

July 3, 2015

It appears that the more cerebral investor, aka the Smart Money is bailing out of stocks and at a very high rate. According to Bank of America's Jill Hall, 

"BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."


It doesn't seem to be a niche group of investors either, this move is deep and widespread at the institutional level and Bank of America has got charts to show you. This next series outlines outflows by the Hedge Funds, Institutional and Private Clients using a a 4 week rolling average. 

The takeways:

  • Hedge funds are net sellers of US stocks on a four-week average basis, which has been the case since late April. They are also net sellers YTD, after selling stocks in 2014 as well.
  • Institutional clients are now net sellers of US stocks on a four week average basis, after being net buyers since late May. They were the biggest cumulative net sellers in 2014, and are also net sellers YTD.
  • Private clients are net sellers of US stocks on a four-week average basis, which has been the case since late April. They were cumulative net sellers of stocks in 2014, but are net buyers YTD.

The big sector that is seeing outflows appear to be the healthcare sector. It's had an amazing run, but it appears the Smart Money has reached a point where they would prefer to bank profits.

And despite all this apparent selling, stocks keep knocking off record high's. Low interest rates with no meaningful alternative for yield will do that. 

The question is whether the Smart Money Consensus is right or wrong. As long as the Fed gets cold feet on normalizing interest rates, the move by the Smart Money will be a painful one as the incentive for stock prices to rise will continue as long as Club Fed continues to spin the music and keep the party going. When DJ Yellen finally decides to stop the music, the Smart Money could be the one's laughing as they have already figured out where the exit signs are.