Markets

Buybacks and ETFs are moving the market as investors shy away from single stocks

Key Points
  • U.S. investors were net sellers of U.S. equities for the second straight week as single-stock sales totaled $1.481 billion between Feb. 25 and March 1, Bank of America Merrill Lynch data show.
  • The S&P 500 registered its ninth weekly gain in 10 last week despite the outflow, adding to its sharp gains this year and since the massive fourth-quarter sell-off.
A trader works on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Stocks are riding high in 2019 thus far, but recent gains have mostly come through buybacks and inflows into exchange-traded funds while individual equities have been shunned, data compiled by Bank of America Merrill Lynch show.

Buybacks last week totaled more than $1.4 billion and are now up 58 percent year over year, on pace for a record year, according to the data. Meanwhile, ETFs saw inflows of $854 million last week, up from $168 million the previous week. Still, U.S. investors were net sellers of U.S. equities for the second straight week as single-stock sales totaled $1.481 billion between Feb. 25 and March 1.

The registered its ninth weekly gain in 10 last week despite the outflow, adding to its sharp gains this year and since the massive fourth-quarter sell-off.

"The fund flows show you that, while we've had a solid recovery off the Dec. 24 lows, the participation rate — both institutionally and by retail investors — has not been there," said Art Hogan, chief market strategist at National Securities. "You're seeing this V-shaped recovery in markets and yet positioning is still very light."

Institutions sold individual stocks in every sector except materials and utilities last week, while retail investors dumped individual equities across all sectors. At the same time, institutions bought into ETFs from every sector except consumer staples, communication services and industrials.

Retail investors put money to work in ETFs across all but two sectors: consumer discretionary and financials.

Still, the S&P 500 has rallied more than 11 percent in 2019 after dropping more than 9 percent in December. Apparent progress in trade negotiations between the U.S. and China has lifted equity prices during that time. CNBC learned through sources on Monday that talks between the two countries were in the "final stages."

The Fed has also expressed patience in monetary policy decisions moving forward, boosting stocks in the process.

And while the rally has taken place with lots of money on the sidelines — potentially serving as an indicator that equities could go up more — National's Hogan said the "psychology behind" investors holding dry powder is "just as important."

"There is a feeling that the bull market is running out of steam. There's a misunderstanding that bull markets die of old age. They don't, but that's clearly part of the psychology," Hogan said. Also, "that abrupt sell-off we saw in December still has reverberations in the marketplace. The short-term muscle memory of how quickly things collapsed is still there, even though some of the things that caused it have reversed."

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