Mechanical Market Drivers

Beyond the low rates, there are forces that elevate stock prices:

1) Companies buying back their own shares and reducing the available supply of shares.

• “In April, a staggering $141 billion in buybacks were authorized—the most ever in a single month and an increase of 121 percent from April 2014. If this pace keeps up, a record $1.2 trillion in buybacks could be reached by year’s end, crushing the all-time high of $863 billion set in 2007.” (Valuewalk, May 31, 2015)

2) Increase in Merger & Acquisitions continues to reduce available company shares in the market place.

• “There have been $406 billion in deals to buy technology and telecommunications companies so far in 2015, on pace for the highest yearly total since 2000, after hitting a nearly decade-high mark last year, according to research firm Dealogic.” (Wall Street Journal, May 29, 2015)

3) The lack of reliable, safe, and liquid markets with stable currencies results in another favorable reason to own stocks. In this respect, US markets remains resoundingly attractive for capital allocators.

These technical or mechanical factors play a massive role in driving price direction. Surely, this is not the best fundamental description of the real economy in terms of wages, job creation, and sales. Nonetheless, these factors cannot be dismissed when assessing liquid markets.