US Stock Buybacks In Biggest Slide Since The Financial Crisis

Tyler Durden's picture

In light of today's euphoric market reaction, which has seen the VIX plunge by over 3 vols, or 20% lower, to just over 12 and sent both the Nasdaq and S&P higher by 1% on relief that there were no mushroom clouds of the weekend, the jury is out whether last week's sharp risk off, short-vol mauling will persist or be just another BTFD opportunity. But while last week's tension may already be forgotten, some disturbing trends persist. As SocGen's Andrew Lapthorne writes, while the S&P trades near all time highs, the smaller cap Russell 2000 dropped a much sharper 2.7%, leaving this index up just 1.3% for the year and down 5% over the last couple of weeks on what we discussed last week was a growing concern for the US economy and companies who do not have exposure to international revenue.

Furthermore, High Yield Credit also fell sharply. Along with the Russell 2000, HYG has also unwound most of this year’s positive performance in a matter of weeks. As Lapthorne writes, "in our view, high yield credit and the Russell 2000 are all the same trade with different wrappers. Their continued success is highly dependent on asset volatility remaining as subdued and debt markets as generous as they have been, both of which we think is highly unlikely."

But the most interesting observation made by the SocGen strategist in his overnight report is that the sudden aversion to balance sheet risk is not restricted to US small caps or HYG, "indeed within the S&P 500 ex financials such a strategy remains the most profitable of our US investment styles this year."

"What might be contributing to this performance trend", Lapthorne asks rhetorically? Here is the most likely explanation: "share buybacks have slumped by over 20% YoY." Ominously, this is the sharpest drop in corporate buybacks since the financial crisis effectively shut down bond markets in 2008, as a result of the market no longer rewarding companies that lever up just to repurchase their own stock. 

SocGen's conclusion: "Perhaps over-leveraged US companies have finally reached a limit on being able to borrow simply to support their own shares." If so, this is a big problem because as Credit Suisse showed recently, corporate buybacks have been the only source of equity injection since the crisis.

If this phase is now officially over, it is unclear what - if any - new source of capital inflows, central banks notwithstanding, will replace corporations as the main buyers of US equities going forward.

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Looney's picture

 

Share buybacks have slumped by over 20% YoY.

And yet… we’re just a fart-sniff away from the all-time-highs.   ;-)

Looney

xantippa's picture

Shepwave was calling for new highs last week but not this week.

xantippa's picture

Shepwave was calling for new highs last week but not this week.

c2nnib2l's picture

I think shep was talking about bigger sell off 

Greenspazm's picture

You're not even worth a "fuck off" yet. Keep working on it.

Proctologist's picture

Don't light a match. Could be just a "boom" from the record low.

;)

GodHelpAmerica's picture

"Central Banks notwithstanding"

wholy1's picture

Janet Yellen - hopefully soon to be scream'n - putting on the liquidity squeeze?

lester1's picture

The unaudited Federal Reserve's PPT along with other central banks are covertly buying stocks to keep this zombie stock market artificially propped up. 

 

This scam won't end until the Fed is fully audited!

Byte Me's picture

Pretty obviously, the CEO, CFO (FFOs) see more 'value' in the blockchain sphere...

The Real Tony's picture

Paying a 4 to 5 hundred percent premium to buy back your own shares equals a one-way trip to chapter 11 bankruptcy.

mayhem_korner's picture

The tenure of those who make the decisions is typically shorter than the road to bankruptcy.  So they care only about maxing out the options portion of their comp.  Misaligned incentives - it's what's been driving the reckless "economy" for decades.

Bemused Observer's picture

Funny...I had always thought that 'investors' chose a company they liked and had faith in, and that they 'invested' that money to help that business grow, so that they could 'harvest' their fruit when it was ripe.

But I was wrong, I guess. Investors choose a company that has 'good pickin's', and use their money to dominate the Boards, where they impose rules that funnel off all profits to them. When they've drained them, they liquidate what's left in bankruptcy and move on to the next one.

 

You have to wonder why ANY company would want 'investors'...seriously. Literally, what is IN it for them? These companies have to know what's coming, they've watched it play out over and over and over again.

 

Let me get this straight...if a company doesn't have the money to pay shareholders their 'profit', they are expected to TAKE OUT LOANS to do so?  Hel-LO? If they have to do that, then there WERE no profits, so why are they entitled to ANYTHING?

 

See, the whole IDEA was to have 'investors' with capital HELP these companies grow...not milk them dry and drive them into bankruptcy. If the company doesn't do well, investors go empty-handed, thus giving them great incentive to make sure that firm is NOT bled dry, by them or anyone else, and that it is well-run.

 

But hell, if you're gonna PAY them to destroy, they will destroy.

hongdo's picture

What part of stealing don't you get?

Everyone now choses which "laws" suggestions they will obey.  Some are just more successful than others.

 

Yen Cross's picture

 Say it isn't soo.  BTFD- central bank dip, losers.

xantippa's picture

Good trading calls again today SHEPWAVE. Getting spooky how they know every move. 

Yen Cross's picture

 Fuck off schleptard!

  It's just a run to VWAP, and down she goes. You fucktards make me laugh!