Buybacks To Be Put On Hold
Corporate stock buyback programs are typically put on hold during the five
week period leading up to earnings season. With the meat of the earnings season
coming in April, the buyback blackout period will begin soon. As a reference
point, last year Alcoa reported on April 8; this year Alcoa is due to report
on April 11. The text below comes from a March 23, 2015 (roughly a year ago) Bloomberg article:
"Blackout periods are on radar screens now because of valuations, the
length of the bull market, and the consensus that buybacks have been a
major part of the bull market," Schlanger, head of equities for the Americas
at Barclays, said by phone. "With the S&P up around 2,100, people are
going to be more attuned to possible fractures or previous areas of support
changing than they were at 1,400."
What Happened Last Year?
The chart below highlights the date of publication for Bloomberg's 2015 buyback
article. Respecting the chart below represents anecdotal evidence at best,
stocks had trouble tacking on gains in 2015 during both the buyback blackout
period and earnings season.
S&P 500's Trend 2015 vs. 2016
Is the S&P 500 in better or worse shape as we head into 2016's blackout/earnings
period? The slope of the 200-day moving average in 2015 heading into the buyback
blackout period was bullish. In 2016, the S&P 500's 200-day has a negative
or bearish slope. From a fundamental perspective, earnings
expectations are lower today vs. March 2015.
This week's stock market video examines the question:
Stocks have staged an impressive five-week rally, but how relevant
is the move thus far in the context of longer-term trends?
Buybacks' Psychological Impact
Given buybacks make up a small percentage of all shares bought on the major
U.S. stock indexes, their impact and importance is debatable. It is probably
fair to say the psychological impact of buybacks outweighs the supply and demand
impact. However, right, wrong, or indifferent, if market participants believe
the buyback blackout period is relevant, it may alter behavior. Markets are
not always rational organisms.
Investment Implications: The Weight Of The Evidence
If the bulls can push stocks higher this week, evidence related to the longer-term
outlook will begin to improve at a much faster rate. While improvement has
occurred over the last five weeks, the magnitude of the shift has been relatively
tame thus far. Therefore, our market
model has not yet called for a shift to our mix of stocks, bonds, currencies,
and commodities.
