Will there be enough ammo to power this market higher from these levels? Are individuals going to come back to stocks after this incredible run?
Of the many remarkable aspects of this incredibly bullish first quarter, the one that stands out to me is the public's amazing, headlong rush OUT of stocks and into bonds.
That's right, the figures I have so far for the first quarter show $118 billion into bonds and $60 billion coming out of stocks.
That's an extraordinary set of statistics. How can stocks rally with money coming out so swiftly?
Some of the ammo to go higher can be laid at the feet of corporate buying. Some of it can be that sellers aren't there every day. They take breaks. The market goes higher. Then they leave again. Four of the last twelve weeks actually saw inflows, so it isn't like the money does nothing but come out.
I think stocks benefited from a total dearth of new supply. The government was shut down for part of the quarter, which meant that the SEC couldn't clear IPOs.
You combine no new supply with voracious, relentless buybacks and you can see how the market can rally without a lot of new cash. How voracious exactly are buybacks in general?
Let's take the biggest one: Apple (AAPL) . While calendar year fourth quarter was not a distinguished time for its buyback -- the company bought $8.24 billion worth at an average price of $216, even as it traded down to $146 in the great Powell bear market of December, a time where the buyback was nowhere to be seen -- Apple did buy back $19.44 billion in the previous quarter.
That's about a third of the money that left the entire market in the first quarter, so you know there can be gains without new money in. Buybacks have taken on a life of their own in this market. They have acted as a trampoline, of sorts, for many stocks and the market as a whole, even as few of the ultra-high-growth stocks do buybacks.
We didn't see the big mergers and acquisitions activity that often crunches stocks and the bigger deals were stock for stock. But the trend of eliminating publicly traded stocks versus adding them continued in the first quarter.
On Friday, Lyft (LYFT) raised $2 billion. Lyft is the first of many companies that will try to raise that much or more. We keep hearing that this IPO wave of unicorns could be worth $1 trillion when it is done. How much new stock will trade as part of that trillion? I think it's reasonable that the coming IPOs will far offset any of the buybacks.
Which brings me to the relevant conclusion: I think that to get all of the deals done and not ding the market, we are going to have to see a reversal of the outflows back into the market.
The decline in stocks in December was one of the scariest selloffs we have seen in ages, and was indicative of how fragile the stock market remains given the speed with which the selling, largely from rapid-fire ETFs, overwhelms the buyers in a bad tape. Every time we get one of these flash crashes we lose individual investors. They tend NOT to come back.
Will these household names that are coming public change the direction of the public's money? Will the promise of a windfall from IPOs draw money back in?
I can tell you this: Without it, this market will have a very hard time sustaining this advance. There's just not enough fuel -- especially when the buybacks cease as we get closer to the quarterly earnings reports.
I know everything looks like the coast is clear with good numbers out of China, interest rates low, and the Fed on hold.
But remember, markets are about supply and demand -- and right now there's going to be a lot more supply and perhaps a lot less demand without new money coming in.
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