The U.S. stock-market rally this month has gotten a big boost from corporations buying back their shares, and computerized trend-following funds adding to their bullish bets, according to data from Bank of America and UBS Group.
According to the latest report on client fund flows from Bank of America, corporate buybacks last week were the second-highest on record dating back to 2010 as a percentage of the S&P 500’s total market capitalization. Last week also marked the second week in a row that the pace of share buybacks was substantially faster than the long-term seasonal trend.
Meanwhile, a team at UBS Group told clients that commodity-trading advisers, or CTAs, as they’re more widely known on Wall Street, finally jumped back into stocks after sitting on the sidelines for a few weeks.
“CTAs have finally decided to join the party. After sitting on the sideline late October and early November, they bought equities in size in the last 2 weeks,” the UBS team said.
UBS estimates that these funds culled 80% of their short positions over the past two weeks, which translates to between $60 billion and $70 billion in equity buying.
The team expects the buying to continue over the next two weeks, with trend-following funds expected to deploy another $30 billion to $40 billion in exposure, even as the rally in U.S. stocks appeared to stall on Tuesday as the S&P 500
SPX
and Nasdaq Composite
COMP
snapped five-day winning streaks.
At this pace, CTAs are expected to once again become “net long” equities by the end of this week.
CTA positioning is sending a strong bullish signal for U.S. stocks, potentially providing another boost to the S&P 500 index heading into the final month of 2023. The large-cap index is up 18.2% to date in 2023 through Tuesday’s close, according to FactSet data.
Since the start of November, it has risen 8.2% to finish Tuesday at 4,538, leaving it within 1% of its 2023 closing high.
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