2023.11.29 01:25
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Bullish signals are flashing in the US stock market! Companies and insiders are going crazy buying back stocks.

US stock companies and insiders are buying back stocks, which is a new sign that investors believe the impressive stock market rally in November still has room to continue. With stock values increasing by $5 trillion in a month, there has been a "significant increase" in buyback activity among corporate clients of Goldman Sachs. The same goes for Bank of America's buyback platform, which just had its busiest week in the company's data history.

US companies and insiders are buying back stocks, a new sign that investors believe there is still room for the impressive stock market rally in November.

With stock values increasing by $5 trillion in a month, Goldman Sachs' corporate clients have seen a "sharp increase" in buyback activity. The same goes for Bank of America's buyback platform, which just had its busiest week in the company's data history. Those in charge of their own company's business are also in buying mode. According to data from Washington Service Bureau, corporate executives and managers have been buying their own company's stocks in November, with the buyer-to-seller ratio reaching a six-month high.

As investors are buying stocks in large quantities, the US stock market is rebounding from its most severe decline this year, and there is growing anticipation that the Federal Reserve will stop raising interest rates as inflation cools down, which will support this rebound. Despite skeptics pointing out the threat of a US economic recession in 2024, insiders have had a good track record in predicting market timing in recent years.

Mike Bailey, Research Director at FBB Capital Partners, said, "We may see insiders bullish on the bull market of inflation decline, end of rate hikes, and mission accomplished. Insiders want to have more control over this information and are willing to pay for it. This is a double optimistic sign, with both companies and individual executives buying back stocks."

As of Monday, nearly 900 insiders have purchased stocks in November, more than double the previous month. While the number of sellers has also increased, the increase is smaller. As a result, the buy-to-sell ratio has jumped to 0.54, the highest level since May.

The last time such strong buying momentum occurred was in March 2020, when the stock market hit the exact bottom of the pandemic collapse, and the ratio of insider buyers to sellers was 2:1. The current bullish stance is different from July, when the stock market was climbing and insiders were selling stocks. It turned out that this exit was prescient, as the S&P 500 index fell 10% in the following three months.

The buyback activity within companies echoes the rapidly growing bullish sentiment elsewhere. From retail investors to large fund managers, bearish bets are being unwound, and concerns about missed opportunities are driving the S&P 500 index to one of its best Novembers in history. Barclays strategist Venu Krishna and others have just raised the target price for the index in 2024 by 300 points to 4800.

After restraining stock buybacks earlier this year, US companies are now embracing them. According to data compiled by Bank of America strategists Jill Carey Hall and Savita Subramanian, the size of buybacks by Bank of America clients has been above seasonal levels for three consecutive weeks, with one buyback reaching a record $4.8 billion.Goldman Sachs Managing Director Scott Rubner pointed out that the company's buybacks could proceed at a rate of $5 billion per day before the market enters a blackout period related to earnings on December 8. Rubner, who has been studying fund flows for 20 years, estimates that once the blackout period begins, flows could drop by 35%.

Rubner warned that this could set the stage for short-term volatility, especially after trend-following fund managers and others who prefer to reduce exposure when conditions deteriorate have increased their stock holdings. The Goldman Sachs veteran wrote in a report, "Corporate buyback demand will fade starting next week. So, the painful trade will turn downward, not upward."

However, from a broader perspective, buybacks can still provide support. According to Goldman Sachs strategists, including Cormac Conners, US companies have announced approximately $900 billion in stock buybacks this year, the third-highest annual total on record.

Compiled data shows that S&P 500 companies, after experiencing consecutive contractions, saw positive earnings growth in the third quarter. Bailey said that with profit growth expected to accelerate next year and interest rates expected to decline, stocks can be seen as an attractive investment, especially those that have lagged behind in the rebound led by the "Magnificent Seven" tech giants in 2023.

He said, "In addition to these seven companies, there have been many profitable and growing companies whose stock prices have fallen this year. Insiders may now be eager to buy these underperforming stocks, as they hope for a turnaround next year, with smaller companies beating larger ones."