Who buys the US stock market?

10 de fev. de 2020

Now it’s hard to find a respected analyst or economist who, honestly, will recommend buying stocks and predicting a rise in stock prices. The scale of its overbought by almost all key metrics is overwhelming, and this is against the backdrop of the coronavirus epidemic, which literally destroys the global economic system from the inside out (breaking supply chains, closing production facilities in China, closing sales outlets and warehouses in China, and a sharp decrease in demand from China for almost everything, etc.). But prices in the world's leading stock markets continue to rise. Means, someone buys quite actively.

A logical question arises: who is this? Super-professionals like Buffett either went to the cache or generally frankly short.

The most obvious option, at least from the standpoint of the strength of their influence on the market, is institutional investors. One of the largest representatives of this group of participants in the US stock market is pension funds. Their assets are measured in trillions of dollars, so they can definitely move the market up.

But the fact is that pension funds are managed by responsible professionals who understand the scale of the inflated bubble and therefore have been reducing the share of investments in the US stock market for several years now.

Sovereign funds with assets under $ 10 trillion could be a great candidate. But they just prefer private investment (private equity), rather than the purchase of publicly traded shares.

Recently, quantum funds and high-frequency trading funds have been gaining more weight in the US stock market (according to various estimates, their assets are 1.2-2 trillion). But these funds are extremely unreliable allies in the market. The specificity of their algorithm is such that from the camp of bulls they can very quickly overrun to bears.

Hedge funds with their 770 billion assets under management are another potential candidate. But recall that hedge funds can both buy shares and sell. That is, they can turn over from purchases to sales at any time. Which again makes them unreliable allies.

An important driver of US stock market growth in recent years has been the Americans themselves (households). But this led to the fact that the structure of their assets began to resemble very much the one that was on the eve of the collapse of the dot-com bubble and the global financial crisis.

Currently, the share of investments in stocks by households is about 34%. There was more only on the eve of the global financial crisis (36%) and just before the collapse of the dot-com bubble (37%).

So their potential for further increase in demand is doubtful - there are too many shares in the portfolios of Americans. Who else is left? Well, for example, the companies themselves. The volume of buybacks of own shares by American corporations over the past few years has exceeded $2 trillion.

And here on the horizon of the US stock market, there is a very serious threat. The fact is that the volume of share buybacks in 2020 is planned to be at least 2 times less than in 2019. That is, the main buyer in the US stock market is losing half of its demand.

In total, the main drivers of US stock market growth over the past 10 years have completely or almost completely exhausted themselves. Buyers are no longer left and any serious sales volumes will bring down this colossus on clay feet.

Recall that we consider 2019 the last year of unjustified growth in the US stock market. Already in 2020, it will begin to adjust. The scale of correction is from 50% and higher. Given that in recent years, shares of technology companies in the US stock market grew by an average of 7-8 times (and some issuers showed growth of 10 or even 20 times), the US stock market will no doubt become the object of massive sales. We recommend participating in this process, selling both the market as a whole (Nasdaq index) and the shares of individual issuers (Apple, Microsoft, Alphabet, Oracle, etc.).