The Market’s Lost Bulls Stumble Upon a Shepherd

To say it’s been tough to be a bull of late in this stock market would be an understatement. The S&P 500 Index sits on the cusp of a correction, with the gauge dropping 9.88 percent from its all-time high in late September through Monday before rebounding 1.57 percent on Tuesday. Not only is the Federal Reserve not backing away from its plan to continue raising interest rates, but corporate earnings growth is poised to slow along with the economy, the trade wars aren’t going away and the midterm elections may leave the business-friendly Republican party without control of the House. Yes, things are bleak, but thank god for Gandalf.

That’s a nickname given to JPMorgan Chase & Co.’s all-world analyst Marko Kolanovic, whose timely calls have allowed him to dominate Institutional Investor’s annual rankings of top strategists for a decade or so. Stocks managed to rise on Tuesday as Kolanovic issued what amounted to a pep talk of a research note, talking up the possibility that the October “rolling bear market” turns into a “rolling squeeze higher” into the end of the year. Of the reasons cited, perhaps the most credible is the notion of a surge in corporate stock buybacks after earnings season. About $110 billion of planned buybacks will be freed up this week, more than twice last week’s $50 billion, and that total will rise to $145 billion next week, Deutsche Bank AG estimated. While it’s unlikely all the money will be spent at once, the data point to potentially improving market liquidity, according to Bloomberg News’s Lu Wang. Along with dividend payments that shareholders tend to reinvest in stocks, actual demand from corporate America will surge to $48 billion a week by mid-November from $10 billion now, UBS Group AG strategists led by Keith Parker estimated. “Buybacks have been the main driver of the equity rally in this cycle,” Deutsche Bank strategists wrote in a research note late Friday. “In the absence of outflows and further positioning cuts, which require incrementally negative news, buybacks should drive equities higher.”