Corporate buybacks will likely be running at $5 billion a day until the market enters an earnings-related blackout on Dec. 8, according to Scott Rubner, a managing director at Goldman, who has studied the flow of funds for two decades. Once the blackout window opens, the flow may drop by 35%, he estimates.
That may set the stage for choppy trading in the short term, especially after fast-money managers such as trend followers boosted stock holdings, making them more inclined to trim exposure should things go sour, Rubner warns.
“Corporate demand will start to fade next week,” the Goldman veteran wrote in a note. “Then the pain trade moves to the downside, no longer upside.”
Viewed in a wider lens, however, buybacks can still offer support. By the tally from Goldman strategists including Cormac Conners, US firms have announced roughly $900 billion of share repurchases this year, poised for the third-highest annual total on record.
Corporations in the S&P 500 returned to positive earnings growth during the third quarter after a streak of contractions, data compiled by Bloomberg Intelligence show. With profit expansions forecast to accelerate next year while interest rates are expected to drop, stocks can be viewed as an attractive investment — particularly those that were left in the dust during the 2023 rally that’s been dominated by the seven largest tech giants, dubbed the Magnificent Seven, according to Bailey at FBB.
“There are plenty of profitable and growing companies outside of the Magnificent 7 that have languishing stock prices this year,” he said. “Insiders could be chomping at the bit to buy these under-performers now on hopes of that we could see a reversal next year, with smaller companies beating the megacaps.”
This article was provided by Bloomberg News.