S&P 500 buybacks hit a new high in the 12 months to September. Buybacks, along with earnings and margin debt, have been key pillars of support in this bull market. Failure to live up to expectations by even one variable can create opportunities for equity bears next year.
 

Corporate buybacks have been one of the key pillars of the current bull market in US equities, and they continue to be.

In the September quarter, S&P 500 companies spent $249 billion in buying back their own shares, up 6.2 percent sequentially and up 9.9 percent from a year ago. Even though the 3Q total pales in comparison to the March-quarter record of $294 billion, a fresh record was set on a four-quarter-total basis.

These companies spent $1.02 trillion during the 12 months ended September (Chart 1). The prior record was $1.01 trillion in 2Q22.
 

Earnings continue to be the other pillar.

Sell-side optimism is elevated for next year. As of last Monday, S&P 500 companies were expected to bring in $308.97 in operating earnings in 2026, with a persistent upward revision since June when as of the 27^th the consensus bottomed at $295.32. In January (this year), sell-side analysts were modeling in $310.02, so the latest estimates are approaching those highs (Chart 2).

If 2026 earnings come in as expected, they would have registered a growth rate of 17.3 percent over this year’s expected $263.44. This year, earnings would have grown 12.9 percent if 4Q numbers at least meet estimates. As was the case with 2026, the 2025 downward revision trend stopped in July when as of the 10^th the consensus bottomed at $254.55. In July last year, 2025 was expected to bring in $277.86.

So, these analysts do have a tendency of going overboard with optimism at the start and then gradually lower their numbers as the year progresses. Next year could turn out the same way, as there is renewed enthusiasm over how 2026 might shape up.
 

Leverage is another pillar, and it, too, is clicking.

In November, FINRA margin debt increased $30.7 billion month-over-month to $1.21 trillion – a record. This was the sixth month in a row of margin debt over $1 trillion (Chart 3).

In April (this year), margin debt hit a low of $850.6 billion and then turned up, rising every month since. US equities, too, bottomed in that month, and have done phenomenally well since.

Leverage can be a double-edged sword. It cuts both ways, as, in a downturn, stocks can come under pressure facing margin calls; but, right now, they are benefiting from the positive sides of leverage.
 

The Russell 2000 has a very high correlation with margin debt – 0.981 going back to January 1997 (Chart 3). This is slightly higher versus either the S&P 500 or the Nasdaq 100.

On the 12^th (this month), the Russell 2000 reached a fresh high of 2596, before coming under pressure a tad, finishing last week at 2529. Before setting that record, the small cap index faced rejection at 2540s several times; the breakout two weeks ago has so far proven fleeting. That said, the index does remain above another crucial breakout at 2460s (Chart 4).

A year ago in November, the Russell 2000 retreated after ticking 2466. Three years before that, in November 2021, the index rallied to 2459 and reversed lower. This year, on 18 September, those highs were taken out, tagging 2470 intraday. Soon after, the Russell 2000 sold off to eventually bottom at 2303 on 20 November; 2300 represents major horizontal support as well as breakout retest, hence a must-save.

As things stand, the Russell 2000 remains above major support but concurrently is struggling to meaningfully build on breakouts, despite its tight correlation with margin debt.
 

Even as small-cap bulls defended crucial support at 2300 on the Russell 2000, large-cap bulls five weeks ago were busy defending 6550s on the S&P 500. This horizontal support, in fact, goes back to September (Chart 5); the November 21^st low of 6522 preceded an all-time high of 6920 posted on 29 October. The rally off the November 21^st bottom petered out at 6903 on the 11^th this month, before coming under pressure and then finding bids last Wednesday at 6720.

Last week, the S&P 500 edged up 0.1 percent to 6835 but was down 1.6 percent at the Wednesday low, resulting in what looks like a hanging man – a bearish pattern – on the weekly. Just above lies a crucial test around 6900 – that of a falling trendline from the October 29^th peak.
 

On the Nasdaq 100, a similar test lies around 25700s. It peaked on 29 October at 26182, followed by a lower peak of 25835 on the 10^th this month. The resulting trendline resistance gets tested at 25700s.

Last week, the tech-heavy index rose 0.6 percent to 25346, although it was down as much as 2.2 percent at Wednesday’s low. The intraday reversal helped create a dragonfly doji on the weekly (Chart 6). This candle signals a potential bullish trend reversal.

That is the dichotomy the market is in as we head into the dying sessions of 2025 – a hanging man on the S&P 500 and a dragonfly doji on the Nasdaq 100. No matter how it resolves in the sessions/weeks to come, the bigger question for 2026 is if the three pillars mentioned above – buybacks, earnings, and margin debt – will continue to support the bulls or they start to weaken, creating opportunities for the bears to raise their heads.

More By This Author:

Equity Indices Likely To Come Under Pressure To Unwind Short-Term Overbought Condition
Indices Rally Toward Oct Highs Ahead Of FOMC Meeting
Surging Rate-Cut Hopes Combined With Defense Of Support Led To Last Week’s Rally