Wednesday Musings
Wednesday Musings
“People do not decide to become extraordinary. They decide to accomplish extraordinary things.”
– Edmund Hillary
This past week Markets (S&P500) are up roughly 2%, and are now up just over 19% for the year.
Give the markets performance this year, and the fact we have come so far off of the pandemic low's, many ask - how can the market keep going higher?
My answer - cold hard cash.
This cash will come from two sources - corporate buy backs, and money on the sidelines.
What are corporate stock buybacks? A buyback occurs when the a company buys its own shares from its current shareholders on the open market. They are buying back from their own stock, hence the name "BuyBack." In recent decades, share buybacks have overtaken dividends as a preferred way to return cash to shareholders.
Buybacks are not without criticism, some valid, some not. I would prefer a company use its capital for investment in capital investment (investing in plant, equipment, new products lines, etc..,) or for strategic investments (acquisitions). However many of these companies are choosing between giving money back to shareholders or simply have the cash sitting in the company's bank account. I'd prefer to see the money returned to shareholders.
There has been 700 Billion dollars of announced buybacks year to date. That is close to three quarters of a trillion dollars of stock going to be purchased in the open market.
The other source of cash to push the market higher will come from money sitting in cash on the sidelines. This cash is shown in the chart below. Currently, balances of money market funds (cash), are at 4.5 Trillion dollars.
Yes 4.5 Trillion with a T.
Money market balances near all time high's combined with massive buybacks are more than enough firepower for the market to continue trending higher. Additionally the economy is continuing to improve, and interest rates remain very low This is not a guarantee that the stock market will go higher, but these facts, in my opinion, show that the ceiling of the market of much higher than we sit today.
