Over the weekend, when we published Goldman's detailed explanation for why the market meltup was set to continue in the aftermath of the post-Black Friday Omicron rollercoaster (see "Red Light Is Turning Green": Goldman Trader Says We Have Seen The Lows For The Year") we heard lots of unhappy grumblings from the comment section that this was just the squid trying to trap bulls into a falling knife of a market.
Actually, no - that particular note, which originated on Goldman's trading desk and represented positions that Goldman's traders had conviction (and money) in...
... was far more actionable than any of the drivel published by Goldman's sellside research team, which is what Bloomberg regaled their readers with this morning in the form of the diametrically opposite report published by the bank's outside client facing Christian Mueller-Glissmann (who does not actually trade), and who said that "the December volatility breakout has room to run -- and risk gauges aren’t yet flashing buy signals."
Of course, looking at stock performance in the past 2 days, the "good" Goldman was correct again much to the embarrassment of the "bad" Goldman whose notes are paraphrased by CNBC each morning. For those who missed it there was one especially clear argument why turning bullish makes sense, namely the staggering amount of buybacks that Goldman documented was taking place:
Buybacks are a significant part of the demand story and close shop for the day at 3:50PM EST
- GS Corporate Execution desk flow was up 2.7x from 2020 levels yesterday (~roughly 3x) - Wednesday
- GS Corporate Execution desk flow was up 2.7x from 2020 levels yesterday (~roughly 3x) - Tuesday
- GS Corporate Execution desk flow was up 2.2x from 2020 levels on Friday US half day.
- GS Corporate Execution desk flow was up 1.9x from 2020 levels last week.
- The buyback open window for 2021 ends on 12/10, 6 trading days.
- The desk increased their FY repurchase estimates from $885 to $925 Billion (+$40 Billion) ie more demand than I expected. (h/t vani)
We brings this up not only because stocks are soaring today, but because as BofA's Jill Carey Hall writes this morning, "last week, as the S&P 500 fell another 1.2%, clients were big buyers of the dip: inflows of $6.7B were the largest since 2017 (and as a % of US mkt. cap, largest since last December)." She also notes that clients bought both single stocks and ETFs, with the biggest single stock inflows in a year and biggest ETF inflows since mid-Sept.
This makes sense in a context that had seen a massive deleveraging by hedge funds in the past 10 days which as we noted earlier, were liquidating and shorting at a near-record pace according to Goldman's Prime Brokerage desk, which observed that "US equities on the GS Prime book made up more than 85% of the global $ net selling (-1.4 SDs) , driven by short sales and to a lesser extent long sales (9 to 1)."
That's why we expected face-ripping short squeeze today and sure enough that's what we got.
But the most notable observation in BofA's report was that buybacks by corporate clients picked up to their highest weekly level since March, with the bank calculating that corporations bought back $3.4 billion worth of their own stock, twice the level from the previous week and well above the recent weekly averages.
The surge in buybacks came as a surprise to Hall as "previously we had not seen any evidence of corporates accelerating buybacks into year-end given tax reform risk."
The data confirms what we had noted previously, that not only is 40% of the current bull market due entirely to buybacks, but that corporations push the amount of repurchases to 11 during times of market stress.
40% Of The Bull Market Is Due Soley To Buybacks https://t.co/NDA3NNyI60— zerohedge (@zerohedge) October 29, 2021
Indeed, as Bloomberg adds today, the data solidifies corporate America’s role as a reliable source of support for the market. The willingness to buy the dip is likely to help calm nerves in a market where hedge funds were cutting exposure to stocks at the fastest rate in 20 months while retail investors saw their brokerage accounts dwindling amid a selloff in cryptocurrencies and speculative technology shares.
As Bloomberg further adds, to many equity bulls "the return of buybacks is a big antidote to market scares over the withdrawal of Federal Reserve monetary stimulus and the emergence of a new Covid-19 variant. Since the start of January, U.S. companies have announced plans to buy $1.1 trillion of their own shares, almost triple the level at this time last year, data compiled by Birinyi Associates and Bloomberg show."
And while the emergence of the buyback bid was fully expected, and explains much of the ramp in the past few days, it's all going to end with a whimper on Friday. As Goldman was quick to caution over the weekend, "The buyback open window for 2021 ends on Dec 10."
In other words after Friday, incidentally the day the latest CPI print is also due, the continued market levitation will get much harder.