New York, NY, June 6, 2016 – Profit Confidential (www.ProfitConfidential.com), an e-letter of Lombardi Publishing Corporation, a 30-year-old consumer publisher that has served over one million customers in 141 countries, is warning that the bull market is in jeopardy as corporate America drastically cuts back on its stock repurchase program.
“The long-suffering bull market is in serious jeopardy, as the biggest buyer of stocks is pulling back,” says economist and lead contributor Michael Lombardi. “After years of record stock buybacks, public companies are now quietly putting the brakes on this controversial and artificial share price support system. Why? Because this is the midst of an earnings recession and companies are tightening their belts in an effort to save money. This could have a devastating effect on stocks.”
Lombardi explains that over the last five years, corporate America has been one of the biggest buyers on the stock market, purchasing trillions of dollars of their own stock. Public companies, flush with cash, chose to use this money to buy back shares and support the share price as opposed to investing in their businesses. Over the last four months, however, public company announcements of stock buybacks have declined by 38% to $244 billion, the largest decline since 2009. (Source: Wang, L., “Bull Market Losing Big Ally as Buybacks Fall Most Since 2009,” Bloomberg, May 15, 2016; http://www.bloomberg.com/news/articles/2016-05-16/bull-market-losing-biggest-ally-as-buybacks-fall-most-since-2009.)
This comes amid the worst slump in profits since the financial crisis. In the first quarter, the S&P 500 reported a blended earnings decline of -6.7%. This is the first time the S&P 500 has reported four consecutive quarters of year-over-year declines in earnings since the start of the fourth quarter in 2008. (Source: “Earnings Insight,” FactSet, May 27, 2016; http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_5.27.16.)
“Corporate America has created the biggest demand for stocks, buying up their own shares and supporting the fragile bull market,” Lombardi adds. “But when this demand for stocks disappears and earnings collapse, investors have to ask themselves, ‘what’s going to happen to the second longest bull market in history?”
“The biggest stock buyer in the market is putting on its brakes, but they are not the only stock buyer pulling back. Between March of 2015 and March of 2016, long-term U.S. stock mutual funds witnessed outflows of more than $200 billion. Stocks do not rise in price unless there are more buyers than sellers, meaning we can finally confirm that the buyers are pulling back,” Lombardi concludes. “2015 was like 2007; stock indices formed a major top in both of those years. And it looks like 2016 will be like 2008, in that the stock market will start to come down sharply.”
For more information on Profit Confidential, visit www.ProfitConfidential.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.