Market participants are understandably concerned about what many argue is a burgeoning supply/demand imbalance in the US Treasury market.

The worry, in a nutshell, is that the buyer base is increasingly composed of price-sensitive investors (as opposed to “price-agnostic” buyers like the Fed) and that’ll invariably mean higher yields (i.e., higher borrowing costs for the US government).

We don’t talk about it as much, but there’s also a supply-demand story in the equity market. The stalwart buyer there is, of course, corporations.

The corporate bid (so, buybacks) is perennially the largest source of demand, a state of affairs that some critics are inclined to deride as an example of shareholder capitalism and perverse incentives. I won’t comment on that here. Rather, I simply wanted to highlight Goldman’s new estimates for corporate equity demand, which suggest corporates will buy a net $550 billion in 2024.

Remember: This is net demand. So, it’s a function not just of buybacks, but also of M&A, IPOs and secondaries. During years when ECM activity is subdued, net demand could still be elevated even if buybacks fall, and during years when ECM activity is robust, you need to net buybacks against higher supply, etc.

“Since 2000, corporations have been the largest source of equity demand, having net bought $5.3 trillion, primarily through buybacks,” Goldman’s David Kostin reminded investors. That’s a lot of buybacks. And, yes, it’s a form of plunge protection, although corporates aren’t exactly famous for buying at good prices.

The figure above gives you a sense of how net demand has evolved over the years, and the interplay with buybacks.

Goldman expects buybacks to rise 4% in 2024, while cash M&A should rise 15%.

The bank also provided some useful color on the epochal (and ongoing) active-to-passive shift, which I present below without further comment.

Via David Kostin

As the secular trend toward passive investing products continues, we expect mutual funds will continue to be net sellers of equities. Since 2007, $3.6 trillion has flowed out of actively managed mutual funds more than offsetting the $2.8 trillion inflow into passive products (index funds and ETFs). So far in 2023, active equity mutual funds have net sold nearly $120 billion in US stocks while an equivalent amount has flowed into passive funds and ETFs. We expect this secular trend will continue in 2024 and result in $250 billion of net equity selling by mutual funds.