Last Four Sessions Lowest Volume Of The Year

The volume over the past five sessions has been the lowest of the year. Traders cut back last week when Trump started to talk about bombing Syria. With so many shorts, no real bad news, and first quarter earnings beating expectations, the ES rallied sharply and the VIX tumbled to 15.39.

Yesterday, trade started with a Globex range of 2678.25 to 2699.50, and total volume of 192k S&P 500 futures contracts traded. The first trade off Tuesdays 8:30 CT futures open came in at 2697.50. After a quick dip down to 2692.50 the ES started taking out buy stops above 2698.00 up to 2701.50. From there, the futures pulled back down to 2697.25 at 9:22, and at 10:09 had traded up to 2708.00, up +28.50 handles, or up 1.00%.

After three lower lows at 2704.00, 2703.50 and 2701.25, the ES ‘back and filled’ up to a new high at 2709.25 at 1:06 CT. The next move was back down to a higher low at 2701.75, followed by a push back up to 2713.25 at 2:23 as the MiM went to $310 million to buy. 2711.25 traded on the 2:45 cash imbalance, and 2706.50 on the 3:00 cash close. The ES then went on to settle at 2706.75 on the 3:15 futures close, up +25.00 handles, or +0.92% on the day.

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In the end, total ES volume was higher, but still very low. When you combine all the short covering, all the buy stops, strong corporate earnings, and add in the cooling geopolitical tensions, it all adds up to higher prices.

According to the Wall Street Journal’s Ben Eisen, companies are holding on to a ton of cash that could end up in shareholders’ hands, one reason some investors are turning more optimistic about the stock market.

S&P 500 companies, excluding financials, had $2.39 trillion in cash and investments in 2017, according to JPMorgan Chase & Co (NYSE:JPM). researchers. That’s up from $2.2 trillion in 2016 and $1.75 trillion in 2010.

“No other time in history have companies held so much cash in a low rate environment,” said the JPMorgan analysts, led by Dubravko Lakos-Bujas, in a research note.

A lot of that could go towards buybacks as companies figure out what to do with their fatter profits and bring back overseas money as a result of the recent tax-code overhaul. The bill included a one-time tax on profits held abroad that was meant to encourage companies to bring their foreign profits back to the U.S.

Buybacks were a significant force during much of the post-crisis stock rally, but they began to decline in the last few years as the economy strengthened and corporate profits accelerated. Now, the tax bill is reversing those expectations. Based on the amount of buybacks already announced this year by S&P 500 companies, JPMorgan analysts project roughly $800 billion in total buybacks in 2018, up from $530 billion last year.

That means buybacks would once again underpin the stock market at a time when tensions are running high over geopolitical risks, a spring slowdown in global growth, and the possibility of heightened regulation in the technology industry. The S&P 500 is down 6.8% from its all-time high in late January.

Because buybacks reduce the amount of a company’s outstanding stock, lifting per-share earnings, they can make the remaining shares more valuable and increase stock prices. Others are critical of the practice, reasoning that it artificially inflates stock prices without delivering actual growth. That cash, they argue, is better invested in research and development and capital expenditures.

The flurry of buyback program announcements this year hasn’t necessarily translated into actual buyback executions yet. Securities rules typically prohibit companies from buying back their shares during the weeks leading up to their earnings reports. But if companies ultimately choose to spend their tax windfalls on buybacks, as they did during a tax repatriation holiday in 2004, it could turn out to be a crucial support for the stock market.

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Written By: MrTopStep