Companies have been the biggest buyers of stocks during the bull market, but that’s slowing down and could be a troubling indicator.
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WED, MAY 29, 2019
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Companies have been the biggest buyers of stock during the bull market. But that seems to be slowing down, which analysts say could be a troubling indicator.
New corporate offerings have jumped to the highest level in years, Ned Davis, senior investment strategist at Ned Davis Research, points out. This includes big initial public offerings like Uber and Lyft, as well as secondary offerings from companies such as Tesla. Based on that, “maybe even the corporate crowd is starting to feel stocks are overdone,” Davis said.
Investors think of it as a basic supply and demand equation. Demand for stock in the form of buybacks is declining, while the supply of shares through IPOs and other issuance is increasing. When supply outstrips demand for a product, typically the price falls and stocks are no different.
Larry McDonald, editor of The Bear Traps Report, said the ongoing trade war and uncertainty it brings “has paralyzed CFOs and their ability to invest for the future,” already dampening capital expenditures. The latest quarterly capex data for the S&P 500 came in at the lowest level since the fourth quarter of 2017, which McDonald said is a “foreshadowing” of a weaker appetite to buy stocks, too.
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