Back when the Fed was engaging in quantitative easing, the almost daily Permanent Open Market Operation through which the NY Fed injected liquidity into the market became such a hit with the broader investing public – simply because because stocks tended to outperform on POMO days – that google searches for “POMO” exploded, and hit an all time high shortly after the Fed launched QE1.
Now for the investing public, it’s all about buybacks, and specifically – when do they return?
To be sure, the buyback blackout period which has coincided with the recent market correction has been the subject of intense focus in recent weeks. For proof look no further than the frequency of Google searches for the phrase “buyback blackout” which rose sharply to its highest ever in October.
The reason for this fascination is that, as we discussed yesterday, as the blackout period rolls off for more companies, especially those with large buyback programs, the pace of buybacks will ramp up sharply.
According to Goldman, roughly 48% of S&P 500 firms are now out of their blackout windows and will be able to resume discretionary share repurchases, while Deutsche Bank calculates that this week, companies with $50 billion of quarterly buybacks were off their blackout periods, and the number jumps to $110 billion by the end of next week and to $145bn the following.
And, as we further observed over the weekend, this is arguably the most bullish argument to buy stocks for one simple reason: from a demand-supply perspective, buybacks have been the main driver of the equity rally in this cycle.
In fact, in this centrally-planned market, it very well may be that buybacks – and lack thereof – are one of the key explanations for the change in equity returns.
Commenting on this phenomenon, Deutsche Bank writes that “in the absence of outflows and further positioning cuts, which require incrementally negative news, buybacks should drive equities higher.” Which also explains why the public is so fascinated with just when the dreaded “buyback blackout” period will finally end unleashing the next round of “BTFD.”
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