In Green U.S. Rally, Analyst Cites Potential Investor/Corporate Rift


As we await more decisive U.S. stock market activity after today’s bell, let’s look at some analysis of this rally that we’ve been documenting for over a week.

“The U.S. stock market in 2019 has exploded, with the S&P 500 index rising 18 percent and the total market adding about $5 trillion in value,” writes Michael Regan at Bloomberg this morning, in what we feel is a remarkably cogent take on recent markets.  “Clearly, it stands to reason, superconfident investors are diving in and buying stocks with both fists. Well, not exactly.”

We’re going to focus on this article today, because it contains some compelling clues about what’s behind U.S. market activity

From the top, Regan goes into individual investor trends, quoting Cameron Brandt, director of research at EPFR, an Informa Financial Intelligence company.

“It’s hard to believe the current cycle isn’t close to rolling over, so cashing in gains as they come makes basic sense,” Brandt says, according to Regan.

Regan then asked the essential question: “if individuals aren’t enthusiastic,” he writes, “who’s buying stock and pushing,” (or at least propping) “prices up?”

Take a look at how Regan answers his own question:

“It’s impossible to know precisely, but one set of usual suspects is clearly doing a lot of the heavy lifting: corporations themselves.”

Later, Regan suggests that the gap between individual investor activity and corporate buying will widen this summer, as cautious investors step out of the market with profit-taking and general seasonal and cyclical aversion.

“To some Wall Street contrarians, outflows amid a market rally are encouraging,” Regan writes.

If we really dig into what these words mean – it looks and sounds quite a bit like a bubble! If investor activity is bearish, but corporations are propping up the stock market by doing stock buybacks, you could easily see the bottom fall out of this market, not just next year or next month, but tomorrow as well.

That’s not to suggest that the rally won’t continue. We’ve already had these indices march much higher, much faster, than many analysts thought probable. But it does make a good deal of sense to look carefully at who’s buying.

Update: 10:58: SP500 2935, DJIA 26430. Still Green!