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The Biggest Threat To The S&P 500 In The Next Month: "Biggest Buyer Of Stocks In 2015" Enters Blackout Period

Tyler Durden's picture




 

Back in January, we revealed that in lieu of QE, which is still on hiatus, the biggest buyer of stocks in 2015 will be corporations themselves, who at the start of the year Goldman estimated were poised to repurchase some $450 billion of their own shares (as "households" were on route to sell a near record $250 billion).

 

Subsequently, we reported that the reason for the relentless surge in the stock market in February following the ghastly January was none other than buybacks alone. In fact, run-rating the February buyback number which was just shy of $100 billion, one can easily state that the previous estimate of $450 billion in total 2015 buybacks will be woefully low. Sure enough, based on a revised estimate by Goldman, the vampire squid now expects companies to repuchase a record $604 billion in 2015, approaching the amount of total liquidity injection during the peak of the Fed's QE.

 

The reason we bring this up is while it is clear to everyone by now that only stock buybacks remain the last real bid for stocks (excluding the occasional BOJ ETF BWIC) and as we further reported, tech company insiders are now selling record amounts of their personal shares to their own companies, is that as Goldman revealed overnight, we are now entering a very dangerous period for stocks: the so-called buyback blackout period.

So, for those curious what the biggest threat to the S&P 500 making new and mandatory daily all time highs is (to keep investor confidence in rigged, manipulated markets high), here is the explanation:

The majority of companies just entered the buyback blackout period leading into the 1Q earnings season, and high valuations in the absence of corporate demand may weigh on stock prices. 

 

Buybacks remain a major source of demand for equity. We expect S&P 500 firms will boost repurchases by 18% to $604 billion in 2015. While roughly 70% of share repurchases are implemented via 10b5-1 programs, firms refrain from discretionary buybacks during the blackout periods that extend from roughly five weeks prior to earnings reports through 24-48 hours post-announcement. As volumes decline, market performance appears more vulnerable to the seasonality of buyback activity.

 

 

The closing of the buyback window ahead of earnings season has recently coincided with weaker S&P 500 performance. In half of the last eight quarters, the S&P 500 declined during the four weeks prior to earnings season. The S&P 500 rose an average of 0.3% in the month leading up to earnings season versus +1.6% both during earnings season and in the month following earnings season.

 

 

How long is the weakness expected to persist? At least until the first week of May when the buybacks resume:

So be very careful with those S&P 500 sell stops: they just may get triggered in the next 6 weeks, after algos do a stop loss test and find there is nobody there to BTFD.

As for will Goldman be doing? Why selling of course. How do we know this? Because it is telling the muppets to buy (all that it has to sell):

Investors should view any market pressure as a buying opportunity. High valuations in the absence of corporate demand may weigh on stock prices. However, we expect the market will climb to 2150 around mid-year 2015 ahead of the anticipated September Fed tightening and as corporate buyback activity resumes once earnings season ends.

 

The closure of the buyback window may lead to a more attractive entry point for investors interested in this strategy. Both GSTHCASH and GSTHREPO are more likely to outperform the market in the month following earnings. Seasonally, the hit rate of outperformance is highest in February, May, and August. We believe stocks with high total cash returns will outperform as S&P 500 firms grow buybacks and dividends by 18% and 7%, respectively, in 2015.

 

In particular, we recommend investors buy our basket of US stocks focused on returning cash to shareholders via buybacks and dividends.

And don't worry: Goldman will have more than enough to sell to you, guaranteed.

 

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Tue, 03/24/2015 - 09:42 | 5921333 NoDebt
NoDebt's picture

Wait it out on the sidelines until QE4 starts.  Or stay in and take a bumpy ride until that point.

Buybacks are fine, but where does that cheap money come from to buy the shares?  QE.

Tue, 03/24/2015 - 09:49 | 5921360 i_call_you_my_base
i_call_you_my_base's picture

"Buybacks are fine..."

Eh, not really, it's greedy, unethical, and irresponsible. Effectively dereliction of duty. The executives are selling out their company to personally enrich themselves at the expense of the long-term viability of the business, and it in turn puts a lot of jobs at risk. But I guess it depends on what you mean by "fine".

Tue, 03/24/2015 - 09:55 | 5921372 p00k1e
p00k1e's picture
Olivia Newton John magic 1980 video


https://www.youtube.com/watch?v=oU5t3Ft5JhU
Tue, 03/24/2015 - 10:31 | 5921486 waterwitch
waterwitch's picture

Sounds like a version of "Sell in May go away."

Tue, 03/24/2015 - 10:04 | 5921393 NoDebt
NoDebt's picture

"Eh, not really, it's greedy, unethical, and irresponsible."

Your point being?

If you assume everything I write is satire, you'll usually be right.

Tue, 03/24/2015 - 10:20 | 5921439 LawsofPhysics
LawsofPhysics's picture

Correct, but this is a universal problem.  At what point will the "leadership" around the globe be held accountable?

roll the motherfucking guillotines, nothing changes otherwise...

Tue, 03/24/2015 - 09:57 | 5921377 ANestIOS
ANestIOS's picture

for once I'm convinced that this ZH article is the real short(ing) deal

Tue, 03/24/2015 - 10:06 | 5921402 NoDebt
NoDebt's picture

I'm going to ask you to slowly remove your hand from the meat grinder.  The last 200 ZH'ers that tried that are all called "stumpy" now.

Tue, 03/24/2015 - 10:09 | 5921410 ANestIOS
ANestIOS's picture

lol, tnx for the advice, it was an attempt in sardonic humour

Tue, 03/24/2015 - 13:39 | 5922172 Panafrican Funk...
Panafrican Funktron Robot's picture

"where does that cheap money come from to buy the shares"

Corporate bonds.  Real IR's are still in the basement post-QE.  Borrow cheap, buy shares.  There's a reason Apple borrows money even though it has a Pacific Ocean of cash.

Interestingly, this leads to another realization, which is that in addition to the trading margin we see reflected in traditional reporting on the topic; the companies being traded are themselves are also margin trading on their own stocks.  It's a margin squared scenario.  Can't imagine anything could possibly go wrong in that scenario. 

Tue, 03/24/2015 - 09:41 | 5921334 venturen
venturen's picture

when that merry go round of company buybacks ends...it is going to be spectacular! 

Tue, 03/24/2015 - 10:01 | 5921386 yogibear
yogibear's picture

Guess we won't get PEs up to 4,000 after all. There is always hope.

Tue, 03/24/2015 - 09:43 | 5921340 ShorTed
ShorTed's picture

Doing God's work.

Tue, 03/24/2015 - 09:43 | 5921341 SoilMyselfRotten
SoilMyselfRotten's picture

So, will the PPT will be on the sidelines as well???

Tue, 03/24/2015 - 09:44 | 5921344 Q-Q-Q
Q-Q-Q's picture

Insider cash cow market!

Tue, 03/24/2015 - 09:46 | 5921352 mijev
mijev's picture

Wow, let's hope that some large central bank can unexpectedly step in and buy stocks.

Tue, 03/24/2015 - 09:59 | 5921382 yogibear
yogibear's picture

See a number of stocks with PE's over 500.  This reminds you of the DOT COM days.

Even though the talking heads deny it and say the market is cheap.

Tue, 03/24/2015 - 10:00 | 5921383 philosophers bone
philosophers bone's picture

"I realize I missed a day.  But [my balance sheet] is too wrecked to care anyway.  Would like to know, before I stop [QE], Did I make it or did I flop?.  I don't want to find out.  I just want to get out [of QE]."

- Scorpions, Blackout [the Fed]

Tue, 03/24/2015 - 10:04 | 5921399 Shizzmoney
Shizzmoney's picture

The problem with cannibalism is that, eventually, you run out of your own to eat.

Tue, 03/24/2015 - 10:15 | 5921431 MilwaukeeMark
MilwaukeeMark's picture

Maybe not in this case. Perhaps it's simply a way to attract more victims
Buy back stock pushes stock price up. Reduced shareholders drive up dividend yields which in turn drives prices up even more in an environment looking for higher yield. At some point insiders cash out. Stock drops. At some point Insiders buy back in.
Wash Rinse Repeat

Tue, 03/24/2015 - 10:05 | 5921400 estebanDido
estebanDido's picture

Smart money versus the idiots.

Tue, 03/24/2015 - 10:10 | 5921413 yogibear
yogibear's picture

Some of the young people don't even know what a bear market is. 

It's been a real long time.

Tue, 03/24/2015 - 10:20 | 5921441 astoriajoe
astoriajoe's picture

Its gonna be EPIC!

Tue, 03/24/2015 - 10:35 | 5921499 richiebaby
richiebaby's picture

You would think, by the NY Fed's blatant manipulation of the S&P, that the officers of the Fed were also getting bonuses based on S&P performance

Tue, 03/24/2015 - 10:45 | 5921532 littlewoodenboy
littlewoodenboy's picture

Most companies use 10b5-1 trading plans to buy stock back which allows them to "buy through" a quiet period.

Tue, 03/24/2015 - 10:52 | 5921576 pragmatic hobo
pragmatic hobo's picture

... there is no such thing as "buyback blackout period" ...

Tue, 03/24/2015 - 11:17 | 5921671 swmnguy
swmnguy's picture

If I read this correctly, the S&P 500 might go down if check-kiting isn't allowed.  Because that's pretty much what stock buybacks are.

Tue, 03/24/2015 - 11:32 | 5921739 Arthur Schopenhauer
Arthur Schopenhauer's picture

Nobody to BTFD!?!

Armageddon outta here!

Tue, 03/24/2015 - 14:00 | 5922262 Youri Carma
Youri Carma's picture
Sam Stovall's Chart Will Make You Wonder if Recession Is Coming http://www.bloomberg.com/news/articles/2015-03-24/sam-stovall-s-chart-wi...
Tue, 03/24/2015 - 19:40 | 5923347 Really20
Really20's picture

This is why all large corporations should be controlled by their workers. Shareholders should be compensated as a percentage of the total return on capital investment, but it is irresponsible to allow the fox to guard the henhouse. Shareholders and creditors, when granted control over a company outside the jurisdiction of a bankruptcy court, seek only to strip assets and plunder rather than produce economic development in the long term.

Publicly offered shares should be capped at 40% of voting rights for the company, with no person or entity permitted to hold more than 1% of total voting rights in a company. Shares should, like bonds, be callable after a certain period of time, a certain amount paid to shareholders, or both. Continued growing of wealth should require continued investment in productive enterprise rather than pouring of money into existing assets.

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