Written by Lance Roberts, Clarity Financial
See also yesterday’s post: Volatility Warning.
As the S&P climbs toward 3,000, individuals are clamoring to get in. Interestingly, while retail investors are chasing stocks, institutions continue to “de-risk” as $6.3B was allocated to bonds and $15.1B was pulled out of equities.
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The net result was a new record to date totaling $229B flowing into bonds, with $154B was pulled out of equities, according to Zerohedge:
“As BofA’s Michael Hartnett writes, there is now a record disconnect between flows & returns in 2019, with only 2016 a similar year in terms of outflows/returns.”
So, how is it that stocks remain near record highs? The primary culprit, as discussed previously, remains corporate buybacks which remain the primary source of market support in 2019. This is especially the case after US banks announced $129 bn in buybacks over the next 4 quarters.
Buybacks, according to BofA, are on pace for a record at $43B so far this year versus just $75B for the entirety of 2018. This suggests a record of over $1 trillion in S&P 500 buybacks for 2019.
Of course, the only reason retail investors own stocks at all is because the media tells them to.
After all, if you aren’t at the “casino table” you are missing out. Right?
One thing you might want to ask yourself, if you indeed believe the former, is why “rich people,” own more bonds than stocks generally speaking?
If buybacks are indeed supporting market performance, it is worth noting that such support can be turned off like a water spigot.
Which means someone is going to be left “holding the bag.”
Just make sure it isn’t you.
If you need help, or have questions, we are always glad to help. Just email me.
See you next week.
