“NEW YORK – Corporate narcissism could be the key to keeping the stock bull market alive.
Three years after the worst stock swoon since the Great Depression, Main Street investors still don’t view U.S.stocks as must-own assets, draining the market of the cash injection it needs to prosper. In contrast, corporations have been fawning over their own stocks and buying back shares in such ample amounts that the market has been able to power higher to new bull market highs.
Flush with cash and in search of good investments in a world of 0% interest rates, more companies have been slapping buy ratings on their own stocks — which they view as undervalued — at a time when individual investors have been content to play it safe and park their cash in bonds and money market funds.
Last year, companies in the Standard & Poor’s 500-stock index spent $404.2 billion to buy their own company’s stock, nearly double the amount back in 2009, says Thomson Reuters Eikon.
Carmine Grigoli, chief investment strategist at Mizuho Securities, attributes the market’s 100%-plus gain since the March 2009 bear market bottom to the stock buyback binge. He says buybacks could total $550 billion this year, creating a positive supply-and-demand dynamic that could catapult the S&P 500 up nearly 11% to 1550 and near its all-time high in the next 12 months.
“It is, has been, and will continue to be the biggest driver of the stock market,” Grigoli says.
Fueling the buyback trend is an “extraordinarily cheap” stock market in relation to Treasury bonds and a corporate sector sitting on more than $1 trillion in free cash, Grigoli says….”
If you enjoy the content at iBankCoin, please follow us on Twitter
