Stocks are now on borrowed time.
Corporate buybacks have been the single largest driver of stock prices in the last quarter. Institutional investors have been net sellers for 15 weeks. And individual investors have been pulling capital out of stock funds in record amounts.
This leaves corporate buybacks as the sole driver of stocks. But now that is ending.
Announced buybacks plunged 34% in 1Q16. This is the single largest plunge in announcements since 2009.
Now, this does not mean buybacks are drying up all at once. As you can see in the chart above, there were a record number of buybacks announced in 2015. Those plans are beginning to be implemented.
So there will be a significant degree of corporate buybacks going forward.
However, buyback announcements and actual purchases are not the same thing. Many times companies announce buyback programs that they later fail to complete. So the buying power here is much less than most realize.
Meanwhile, earnings are collapsing, while stocks remain near all-time highs.
Either earnings need to erupt higher in the next few months (highly unlikely given lack of growth) or stocks need to drop at a minimum 20%.
This whole mess feels just like the end of 2007/ beginning of 2008 to me.
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In it, we outline precisely how the coming crash will unfold, as well as which investments will perform best, including “crash” insurance trades that will pay out big returns during a market collapse.
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To pick up yours, swing by:
Chief Market Strategist
Phoenix Capital Research