All eyes on stock buybacks

All eyes on stock buybacks
Corporate purchases may be the only factor capable of sustaining the equity market's rebound, analyst says
NOV 09, 2018

If U.S. stocks want to reclaim their September highs, buybacks might have to carry the load. Strategists including JPMorgan Chase & Co's Marko Kolanovic have championed the idea that an increasing corporate bid for U.S. equities will buoy returns through the end of the year, an idea that has been bolstered by news of big repurchase announcements from the likes of IBM Corp. Brian Reynolds, asset class strategist at Canaccord Genuity, goes further. Right now, buybacks look like the only game in town when it comes to sustaining this rebound, he wrote in a note Thursday. The analyst points to weakness in the Smart Money Flow Index, which attempts to gauge stock flows at the tail end of the trading day, thought to be from large sophisticated buyers. This index fell harder than the broad market during the recent tumult, and hasn't recovered as quickly.https://cdn-res.keymedia.com/investmentnews/uploads/assets/graphics src="/wp-content/uploads2018/11/CI117836119.PNG"

"The continued bearishness of investors despite the stock price bounce indicates to us that debt-fueled buybacks are likely going to be even more important," he wrote, adding that large-cap names are likely to initially pace gains. It's debatable just how "smart" this index really is, and some strategists have argued the ascension of exchange-traded products shows this metric more reflects passive flows. The equity bounce so far offers mixed support for the buyback thesis. A basket of companies compiled by Goldman Sachs with a penchant for buying back a substantial amount of their own shares has outperformed the S&P 500 Index since its Oct. 29 low. However, so have small caps. The seeming lack of appetite for stocks from big professional money managers also raises the chances that this bounce in equities is a head fake and a return to lows may be in store, he wrote.

Latest News

Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney
Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney

Nine-month electronic trading freeze and share lending program at the center of dismissed claim.

RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone
RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone

Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.

Rethinking diversification amid a concentrated S&P 500
Rethinking diversification amid a concentrated S&P 500

With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.

Merrill pays second settlement to former Miami Dolphins player, client of ex-broker
Merrill pays second settlement to former Miami Dolphins player, client of ex-broker

Professional athletes are often targets of scam artists and are particularly vulnerable to fraud.

Schwab touts AI as its biggest growth lever at investor day
Schwab touts AI as its biggest growth lever at investor day

The brokerage giant tells Wall Street it will use artificial intelligence to reach clients it has never been able to serve — and turn the technology's perceived threat into a competitive edge.

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management

SPONSORED Durability over scale: What actually defines a great advisory firm

Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline