Ok, so part and parcel of the bull thesis for U.S. equities going forward is the assumption that the buyback tailwind (created in part by the tax cuts) will act as real-life plunge protection come hell or high tariffs.
That contention was seemingly borne out in February when Goldman’s buyback desk had its most active two-week stretch ever.
“The Goldman Sachs Corporate Trading Desk recently completed the two most active weeks in its history and the desk’s executions have increased by almost 80% YTD vs. 2017,” the bank wrote, in a late February note published after the turmoil surrounding the VIX ETP implosion and the consequent deleveraging by the systematic crowd had largely run its course.
Fast forward four months and folks are still counting on buybacks to help support U.S. equities which, along with other risk assets, are staring down a veritable laundry list of concerns, not the least of which is the increasingly dangerous game of trade chicken between Donald Trump and the rest of the world.
Over the last several days, the trade bombast was cranked up several more notches. On Friday, Trump again threatened to tax European auto imports just two days after a guidance cut from Daimler delivered a serious blow to sentiment. Then, on Sunday evening, reports indicated that the administration is all set to announce a new plan that seeks to restrict Chinese investment in U.S. industries on national security concerns. Those would be the same national security concerns Trump is using to justify the proposed auto tariffs.
Through it all, U.S. equities have remained resilient, especially when compared to global counterparts and one of the pillars of support is the assumption that record buybacks will be there to cushion the blow whenever geopolitical risk comes calling (which is every fucking day). Goldman, for instance, cited buybacks in their relatively upbeat note raising EPS forecasts last week.
