So remember how, time after time for the last couple of years, Goldman has reminded you that the corporate bid is by far the biggest single source of demand for U.S. stocks?
You know, that would be the (largely) price insensitive bid that’s gotten a shot in the arm from financial engineering as firms borrow at artificially suppressed rates and plow the proceeds into EPS-inflating buybacks.
If you’ve forgotten about that, here’s the relevant table for equity demand:
Well as it turns out, buybacks might have been the only thing that kept the bottom from falling out completely last week during the rout – or not. Depending on who you ask.
According to David Kostin, “the Goldman Sachs Buyback Desk observed that Monday’s notional value of repurchases on behalf of corporate clients surged to the highest level since the correction in August 2015.” By the time it was all said and done, it was apparently the biggest week on record:
So, that looks like nearly 5X the average daily volume.
Of course what’s weird there is that in the very same note that Kostin tipped that, he also said this:
The pullback coincided with the blackout period for share repurchases, likely intensifying the decline. Firms are prohibited from discretionary buybacks during the weeks before earnings are released.
And as Bloomberg notes, “to a degree, Goldman’s data is at odds with a body of Wall Street opinion that corporate buyers were largely absent before or during the sell-off due to blackout restrictions customarily tied to earnings season.”
Whatever the case, it looks like Goldman’s buyback desk isn’t enough to stop the bleeding in an acute situation, especially when retail investors are exiting en masse …
… and the systematic crowd is in the process of unloading some $200 billion in equity exposure.