Let's begin with a bit of a refresher. In February, The Investor Movement Index (IMX) indicated that for the first time in a very long time, TD Ameritrade retail clients were net sellers of equities and their level of behavioral sentiment had hit a new two-year low. And what happened in the ensuing weeks in the stock market? It seems that the defensive positioning served them well. The S&P 500, Dow Jones Industrial Average and Nasdaq all ended the period between 2% and 3% lower than where they began.
In March, the IMX advanced about 1%, to 4.75 from 4.70. So, our clients have only increased their equity market exposure moderately from what was otherwise a two-year low. Volatility in the S&P 500 as measured by the Volatility Index (VIX) was at a year-to-date low to begin the period, and remained low relative to recent levels throughout the month. Both equity markets and Treasury bonds traded higher immediately following the Federal Reserve's policy statement, which indicated that the timing of any rate increase would still be dependent upon the Fed's economic goals -- and that the country had not satisfied these goals yet. Crude oil prices also continued to play a role in the markets, as their levels declined through the first half of the month on concerns about U.S. storage capacities reaching their limits.
Source: TD Ameritrade
Two primary factors drove the IMX score only modestly higher this month. First, retail clients were broad net buyers of the equity markets. We're not talking about a little buying here and a little buying there; there was strength in buying. But the main reason that the IMX score didn't advance in a more pronounced manner is the second factor: a reduction in volatility relative to the S&P 500 for some widely held stocks in TD Ameritrade client portfolios. Apple (AAPL), Facebook (FB), Bank of America (BAC) and Alibaba (BABA) all saw reductions in volatility during the month relative to the S&P 500. The reduction in portfolio beta served to moderate the rise in equity market exposure against the net buying activity.
What Were They Buying?
Continued price pressure on oil producers and energy-related stocks appeared to translate into buying opportunities for clients, as Exxon Mobil (XOM), Chesapeake Energy (CHK) and SeaDrill (SDRL) were all net buys and saw declines in their values over the period. Names making headlines were also popular buys. Apple was a net buy as the media and investors speculated about a dividend increase coming next month and the possibility of a special dividend being announced. Lumber Liquidators' (LL) stock price plunged at the end of February and continued to trade lower in March, which seemed to prompt some clients to buy the stock. Additional popular names bought included Tesla Motors (TSLA), Disney (DIS) and Visa (V).
What Were They Selling?
March saw net selling in popular financial names such as Citigroup (C) and American International Group (AIG). Both companies had court settlements announced in March and had rebounded back near levels of resistance after hitting year-to-date lows in late January. Well-known dividend payers Ford Motor (F) and McDonald's (MCD) saw year-to-date highs in March and were net sells. Alibaba, which has declined in price since its disappointing earnings result in January, appeared to find a level of support and was net sold as well. Additional popular names sold included Yahoo! (YHOO), Amazon (AMZN) and Sirius XM (SIRI).
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline on this article.