The surprising shift by institutional investors to become net buyers of stocks appears to have lasted just one month as they returned to their positions as the biggest sellers in the equity market in September.

Institutions sold a net $29.93 billion in equities throughout September, their highest level of selling since May and a reversal from August when the group bought nearly $6.82 billion in stocks, according to the latest data from S&P Global Market Intelligence.

Institutions sold a net $241.43 billion from the end of September 2023 to the end of September 2024, even as the S&P 500 rallied more than 34% over that time, the data shows.

"Institutions are adopting a more defensive position as we enter the final quarter of 2024," said Thomas McNamara, a director for Issuer Solutions with S&P Global Market Intelligence. "Several factors are driving this approach, including the upcoming election, ongoing conflicts in the Middle East, Federal Reserve policy, and uncertainty about the presidential outcome."

In spite of these lingering concerns, however, institutions boosted their positions in consumer discretionary sector stocks by 0.4% in September, the top buy for the group for the month. The move into consumer discretionary suggests that institutional investors may have some optimism about the path of the economy as the Fed begins to ease monetary policy through lower interest rates, McNamara said.

Retail investors, meanwhile, reduced their exposure to consumer discretionary stocks by 1.3% in September, the sector that saw the most selling for the group throughout the month.

"Retail investors sought to capitalize on short-term gains, with the sector emerging as the top performer following the Fed's rate cut," McNamara said. "In contrast, institutions, with a longer-term perspective, viewed September as the potential onset of sustained stock price appreciation in the sector, driven by the expectation of continued interest rate reductions."

Overall, capital flows in September seemed to reflect more long running trends. Retail investors sold off $9.38 billion in September, $136.37 billion over the past year; index and exchange-traded funds bought $12.71 billion, $195.93 billion over the course of the year; and hedge funds bought $10.74 billion after buying $22.44 billion in August, continuing to switch from buying and selling each month. Hedge funds have bought a net $8.95 billion since the end of September 2023.

Hedge funds have been employing two divergent strategies recently.

The first strategy, McNamara said, is seizing on trading volatility, buying during stock market dips and selling at potential peaks. This strategy pays little regard to the longer-term direction of the market. The second strategy has hedge funds allocate capital towards more passive investment in order to capture broader market gains as momentum increases in the overall economy.