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The companies comprising the S&P 500 are the only ones keeping the bull market alive…
Bloomberg reports S&P 500 companies will buy back $165 billion of their own stock in the first quarter of 2016. That’s just under 2007’s record high.
At the same time, “mom-and-pop” investors have pulled $40 billion out of the market since January… through mutual funds and exchange-traded funds (ETFs).
That’s one of the biggest outflows ever.
The gap between corporate buying and individual selling is on pace to hit $255 billion for the first quarter. That’s the largest gap since 1998.
Eight years of Federal Reserve ultralow interest rate policy has let these companies borrow massive amounts of money… almost for free.
But this easy money has bid up asset prices almost across the board. That leaves few good opportunities for businesses to invest the cash in new growth projects.
So corporate executives see share buybacks as their best option.
Debt-financed corporate buybacks can go on a long time… but not forever. They’re not consistent, either.
The chart below shows 2016’s stock market chaos came during corporate earnings season. Companies pare back their stock repurchases during these times.
With no other buying support, the markets tanked…
Corporate buybacks cannot sustain a bull market entering its eighth year all on their own. But if “mom-and-pop” investor sentiment shifts, we’ll see the market power on to new highs.
Bottom line: Don’t even think about stock investing in this environment without securing your risk-management protocol first. You’re begging for brutal punishment without it.
Then, read Tom’s can’t-miss explanation of how “sentiment drives fundamentals” in the markets. It will help you become a better, safer trader or investor.