It is no secret that one of the main underpinnings of the U.S. stock market has been share buybacks by companies. In early June, Apple alone announced plans to repurchase its shares for a whopping $110 billion. Apple stock rose by about 6% after its announcement
Overall, S&P Global data shows that S&P 500 buybacks in Q1 2024 totaled $236.8 billion, up 8.1% from $219.1 billion in Q4 2023 and up 9.9% from $215.5 billion in Q1 2023. As the saying goes, there's no better investment than in oneself...
In theory, the loss of this crucial support could dampen market optimism. As fate would have it, Goldman reports that 80% of S&P 500 companies have paused their buybacks, which could weaken support for the index.
Will the bears return?
It is too early to tell. The pause in buybacks is mostly a technical issue. Companies are legally required to pause buybacks before reporting their results, so things could return to normal in 3-4 weeks.
In general, caution is recommended in the coming days. This affects pauses in buybacks and portfolio rebalancing. Investors may be selling high-yielding stocks to rebalance their portfolios as we enter the new quarter.
It is easy to guess which stocks will be in mind to sell first: large technology companies have recently led growth. The concern is that other stocks may suffer due to the heavy weighting of tech in the S&P 500.
What do the experts say?
The very same Goldman Sachs recently raised their forecast for the S&P 500 to 5,600 points. They expect the index to end the year up 17.4%, following a 24% gain in 2023.
But there are also pessimists. For example, perennial bear John Hussman believes that increasing market warning signs suggest the S&P 500 has reached a speculative high. He forecasts trouble.
He points to the ratio of non-financial market capitalization to corporate gross value added, which now exceeds even 1929 levels when the Dow fell 89% from its peak.
Who will be right?
Ultimately, it depends on the market. What Hussman is doing could be seen as rigidly clinging to his beliefs. While he may eventually be proven right, missing out on significant stock growth could be costly.
As for Goldman Sachs' forecasts, barring unexpected events such as further problems with regional banks or something more serious, such as a debt crisis, their projections seem achievable for now.
However, it is crucial to consider risks and adjust investment strategies to changing realities. For example, if geopolitical tensions increase, it may be prudent to consider defense companies and similar options.