The rally of the last month has many scratching their heads.

That is, until you realize:

  • Most of it was driven by “short-covering.”
  • The primary buyers of stocks today are corporations buying back their stock to juice EPS, not actual investors.
  • Actual investors have been selling the farm.

Central Banking manipulation only works as long as a reasonable number of investors continue to “drink the Kool Aid.”

Unfortunately we are now well past that point.

The Fed failed to raise rates last week, despite virtually every data point the Fed claims to care about hitting its desired levels. At this point, even former Fed cheerleaders like CNBC’s Steve Liesman are questioning the Fed’s credibility.

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Regarding #2, the only real buyers of the market at these levels are corporations looking to increasing EPS by reducing their number of share outstanding via buybacks.

Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.

            Source: Bloomberg

Note that in the above article, REAL investors are engaged in “rampant selling” of stocks. Put another way, REAL investors are getting out of Dodge!

And the blackout period for Corporate Buybacks starts today. Put another way, the ONLY buyer of stocks is stopping buying.

U.S. stocks are entering part of the year when one of their biggest support systems is turned off.

Buybacks, which reached a monthly record in February and have surged so much they make up about 2 percent of daily volume, are customarily suspended during the five weeks before companies report quarterly results, according to Goldman Sachs Group Inc. With the busiest part of first-quarter earnings seasons beginning in April, the blackout is getting started now.

Source: Bloomberg

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Chief Market Strategist

Phoenix Capital Research