Goldman Sachs: The window for corporate stock buybacks is open, with US stocks receiving support!

At the beginning of last week, concerns about the economic recession triggered by poor US non-farm payroll data caused a sharp drop in US stocks. By the end of the week, US stocks had recovered most of the losses, with major indices opening higher on Monday, August 12th, supported by chip stocks, leading to gains in the S&P 500 and Nasdaq.

Goldman Sachs trader Vani Ranganath pointed out in the weekly report that this is because corporate stock buybacks are coming to the rescue of the US stock market. Currently, 90% of S&P 500 component stocks are in an open buyback window, and it is expected that this proportion will increase to 93% by the end of this week. This means that almost all component companies will be able to buy back stocks, and this open window will last at least until September 6th.

Data from the active fund flow at Goldman Sachs' corporate trading desk shows that the average daily trading volume (ADTV) related to stock buybacks from August 5th to August 9th last week was 1.6 times the year-to-date average, reaching as high as 2.1 times in 2023, and 1.4 times in 2022. Last week's corporate stock buyback funds were focused on the technology, financial, and non-essential consumer goods sectors.

This indicates that as the US stock buyback window reopens, the trading volume for buybacks starting last week has doubled. At the same time, the total amount of stock buybacks authorized by corporate boards in 2024 so far is $81.9 billion, an increase of about 14% from 2023, representing that in the upcoming buyback window, the amount of corporate buybacks in the coming days will only increase, with the flow of funds providing a short-term positive outlook for the stock market.

Previously accurately predicting the current market correction, Goldman Sachs technical expert Scott Rubner also stated today that with the easing of selling pressure from systematic funds and the increase in stock buybacks by listed companies, investors will have a short-term opportunity to buy US stocks at a low point at the end of August.

Rubner had advised at the end of June this year to reduce exposure to the US stock market after July 4th. He also warned investors that after reaching a certain point in September, the market outlook will deteriorate, and there will be no clear upward trend in the market before the fourth quarter and the US November electionRenowned for its sharp tongue, the financial blog Zerohedge stated that last week, the panic in the economy combined with the unwinding of yen carry trades led to a massive sell-off in US stocks by trend-following CTAs (commodity trading advisors), resulting in near-record levels of systematic liquidation and a surge in the VIX. The only weapon against this bearish selling pressure is that the corporate stock buyback window is now open, with billions of dollars being repurchased daily.

The analysis also mentioned that as long as the "fear index" VIX, which measures short-term volatility in the S&P 500 index, remains trading around 20, the forced selling that occurred last week will continue, albeit at lower levels due to reduced volatility. VIX edged up slightly on Monday to trade at 20.71, after soaring nearly 200% to 65 last Monday, reaching the highest level since the onset of the pandemic in March 2020.

Back in March this year, Goldman Sachs predicted that driven by strong earnings growth of tech companies and the accommodative financial environment brought about by the Fed rate cuts, US stock buybacks would surpass $1 trillion for the first time in history by 2025. It is expected that buybacks by S&P 500 index component companies will grow by 13% to $925 billion in 2024, and by 16% to $1.08 trillion in 2025. The uncertainty surrounding the US election may prompt companies to delay large-scale stock buybacks until 2025.