Tech Buybacks Dominated the Week, BofA Flows Show

March 31, 2021 8:14 AM EDT

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BofA Securities' weekly flows for the week of 3/22 show that clients were buyers of US equities ($1.1 billion), an activity driven by ETFs, whose buying was concentrated in Large Cap/Blend ETFs.

Retail clients were at a 4-week high while the third client group - institutional clients - were net sellers (biggest outflows in nine weeks). Overall, the last week’s flows show a frothy market overall, says strategist Jill Carey Hall.

The week was marked by buybacks with the Tech sector leading the way.

“Record buyback trends but cash-return priorities may shift • After a big resurgence in buybacks this month, four-week average repurchases by corporate clients are now at record highs. Buybacks have been dominated by Tech (near-record repurchases each of the last six weeks), but are starting to pick up in sectors including Cons. Disc., Health Care and Financials (after a green light from the Fed),” says Carey Hall in a weekly note to clients.

“If corp. client buybacks continue at the same pace ($21B YTD or >$80B annualized), this could imply >$900B of gross S&P 500 buybacks this year (based on BofA’s ~9% avg. share of S&P buybacks over the last 5yrs). This would be above 2018’s peak $800B levels and nearly double 2020’s depressed $500B levels, suggesting upside risk to our forecast for no net EPS impact from buybacks to the S&P.”

However, the strategist notes that the strong pace of buybacks may not continue if companies decide to shift more funds towards CapEx.

“We see multiple tailwinds for capex including the cyclical rebound, a potential infrastructure bill and US re-shoring. What else can curtail buybacks? Payback for stimulus (i.e., higher taxes) which could cost 5-10% EPS growth,” adds Carey Hall.

On the ETFs front, Growth ETF inflows outpaced Value ETF inflows for the third week.

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