In Face Of Lack Of Buying By Foreigners And Continued Buildup In Cash, ’18 S&P 500 Buybacks Record $800B

Corporate buybacks were the savior last year, even as investors took cash out of equities and foreigners reduced exposure to US stocks. The status quo needs to change. Bulls cannot continue betting on continued buyback momentum.

On a 12-month rolling total basis, foreigners began selling US stocks last September. Till August, they were buying $16.4 billion worth. Come October, they went negative. Early in that month, stocks began what soon turned out to be a cliff dive. By the time the S&P 500 large cap index bottomed on Boxing Day, it had lost just north of 20 percent. This, however, was not enough to entice foreigners back onto the long bandwagon.

In December, they sold $129.5 billion worth, which was the highest since May 2016. In that year, US stocks reached a major bottom in February, as foreigners sold a record $145.3 billion worth. Then they flipped. The green bars in Chart 1 began to rise (violet dashed vertical line). The timing was perfect.

This time around, foreigners began to get cautious early last year, with peak net purchases of $135.7 billion in January (black dashed vertical line). Late January, stocks came under severe pressure, bottoming two weeks later. But foreigners continued to reduce exposure. This may have changed this January, as stocks shot up in that month. We will find out when January’s numbers are reported Friday next week. This will be a big tell. Without foreigners on board, it will be difficult for bulls to build on the momentum they have enjoyed since late December.

This is particularly so because cash continues to accumulate on the sidelines.

From when stocks bottomed 10 weeks ago through Tuesday, data show, $21 billion collectively left SPY (SPDR S&P 500 ETF), VOO (Vanguard S&P 500 ETF), IVV (iShares core S&P 500 ETF), QQQ (Invesco QQQ trust), IJR (iShares core S&P small-cap ETF) and IWM (iShares Russell 2000 ETF). Similarly, since that low through the week ended Wednesday last week, US-based equity funds lost $14.9 billion.

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Disclaimer: This article is not intended to be, nor shall it be construed as, investment advice. Neither the information nor any opinion expressed here constitutes an offer to buy or sell any ...

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