Last week was yet another week in which equity bears were unable to convert potentially bearish signals into opportunities. Bulls have now rallied the S&P 500 within striking distance of the high from two weeks ago and are sitting pretty with a chance at a fresh high.
 

The 3Q25 earnings-reporting season has just begun. As of last Tuesday, just under 10 percent of S&P 500 companies had reported their results, and the blended estimates were down $0.17 from a weak ago to $66.57 (Chart 1).

Last Tuesday, JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C) and Goldman Sachs (GS) reported, and results were better than expected. For the blended estimates still to come down highlights two possibilities: either there was weakness elsewhere or the sell-side cut their numbers just to lower the bar.

September-quarter numbers have gradually come down since registering $67.07 mid-September. The lower the bar, the easier it is to meet/beat estimates.
 

The S&P 500 is responding. It has been feverishly rallying since bottoming at 4835 on 7 April. On Monday, it jumped 1.1 percent to 6735. On the 9^th (this month), the large cap index reached a record 6765 before turning lower; it bottomed in the very next session at 6551, just above the rising 50-day moving average (now 6571). Horizontal support at 6550s goes back five weeks, with four of the last five weeks successfully testing that support (Chart 2).

With Monday’s rally, the S&P 500 is now within striking distance of testing its high from early this month and – hopefully for the bulls – even surpassing it. Kudos to them for having repeatedly denied the bears an opportunity to confirm potentially bearish candles. There have been several going back 15 weeks, including a couple of weekly dojis, a couple of bearish engulfing candles, a hanging man and a couple of spinning tops. These were opportunities for the bears to push prices lower but were never converted.
 

Once again, the ball is with the bulls, which have had the luxury of consistent support from corporate buybacks. Going all the way back to the Covid-19 lows of 2192 in March 2020, buybacks have provided a reliable source of buying power. In the June quarter of 2020, S&P 500 companies spent $88.66 billion, which was the lowest quarterly total since 1Q12. Through the June quarter this year, a cumulative $4.4 trillion has been spent since the Covid low (Chart 3).

Buybacks set a new high of $293 billion in 1Q25, followed by a shift lower to $235 billion in 2Q; accordingly, the four-quarter total came in at $998 billion in 2Q from 1Q’s record $999 billion. That is a lot of dollars these companies are deploying in buying back their own shares.

Apple (AAPL) is the big honcho, spending $23.6 billion in the June quarter; JPM is the fifth with spending of $7.5 billion. Last week, after reporting 3Q results, JPM did not announce a new buyback plan; its most recent announcement was a new $50 billion program approved in July. This is the risk going forward. As stocks continue higher – and with it valuations – corporate boards may be less willing to splurge on buybacks; they can instead raise dividends or just conserve the cash.
 

Leverage is another wildcard worth paying attention to.

FINRA margin debt in September surged $66.8 billion month-over-month to $1.13 trillion – a record. Since April when the major US equity indices reached a trough and margin debt bottomed at $850.6 billion, the latter has jumped 32.4 percent. Thus far, the April trough in both the S&P 500 and margin debt has worked out beautifully. Several times in the past, a bottom in the year-over-year percent change in margin debt has coincided with a reliable bottom in the S&P 500 (Chart 4), although the April trough in margin debt came while the y/y change was still positive; in the past, they all bottomed in the negative territory.

Regardless, margin debt thus far is fully cooperating with the bullish equity momentum, providing a nice tailwind.
 

Speaking of a tailwind, investor sentiment measured by Investors Intelligence’s bullish percent is solid but is yet to reach outlandish territory. As of last Tuesday, bulls dropped 3.9 percentage points week-over-week to 53.8 percent. A reading of 58.5 percent in the week to September 23^rd set a nine-month high. The last time bullish sentiment hit 60 percent was last December.

As a result, it has been a while since the ratio of bulls to bears has hit four or above; in fact, it was July last year (Chart 5). There have been several three-plus readings since, including the last seven in a row. This perfectly reflects the current bullish momentum in equities, but at the same time it also indicates that in the ideal circumstances for the bulls there is room for it go crazy, or crazier.

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