J.P. Morgan’s quant strategist Marko Kolanovic is eyeing a key silver lining in this past week of stock market volatility that few are talking about: stock buybacks.
“As ~85% of companies exited [the] blackout period, buyback activity has been increasing,” Kolanovic wrote in a note to clients Thursday.
Kolanovic also noted that in the three days after President Trump’s Aug. 1 tweet about imposing new tariffs on imports from China starting September 1, the S&P 500 intraday fell over 8% with investors losing $5 trillion in stock value globally.
“The majority of buyback activity is sensitive to stock price declines, and an 8% drop in the [S&P 500 (^GSPC)] has activated accelerated programs,” he wrote.
In Kolanovic’s estimation, average buybacks of roughly $3 billion daily “has likely tripled to nearly ~$10 billion of purchases per day.”
The volatility was exacerbated on Monday when China allowed its yuan currency to weaken past the psychologically important 7 level against the dollar (CNYUSD=X).
A trader in the Eurodollar options pit at the Chicago Board of Trade, November 2, 2011. . REUTERS/Frank Polich
More broadly, Kolanovic sees the latest stock market pullback as a buying opportunity.
“We do think that after a short period of stabilization, markets will likely regain previous highs, and hence we see this sell-off as a medium-term buying opportunity,” he wrote. “The risk to this view is further uncontrolled escalation of trade tensions, which we see as a less likely scenario, given that we’re approaching an election year and a trade-war-induced recession would greatly reduce the probability of the president’s re-election.”
The S&P 500 is up roughly 16% so far this year.
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