Dow Futures Point to Big Wednesday Open, but Dwindling Buybacks Spell Trouble

Futures on the Dow and broader U.S. stock market traded sharply higher Wednesday morning, setting the stage for a big open once regular trading begins.

Futures Rise

The Dow Jones futures contract for September jumped 169 points in pre-market trading to reach 26,100, according to Bloomberg. S&P 500 mini futures climbed 21.25 points to 2,919.60. The Nasdaq 100 mini contract advanced 66.75 points to reach 7,734.75.

At the current pace, the major indexes will likely open sharply higher after 9:30 a.m. ET.

U.S. stocks declined sharply on Tuesday, with the Dow Jones Industrial Average falling 173.35 points, or 0.7%, to 25,962.44. The blue-chip index is down 4.4% over the past month. The S&P 500 and Nasdaq have each declined by around 2.5% over the same period.

Share Buybacks Hit 18-Month Low

U.S. companies are repurchasing their own shares at the slowest pace in a year-and-a-half, a potential sign that the bull market was on its last leg.

As The Wall Street Journal reports, companies in the S&P 500 repurchased roughly $166 billion of their own shares in the second quarter, down from $205.8 billion in the first quarter. It was the weakest quarter of buybacks since Q4 2017, when companies repurchased nearly 4137 billion of their own stock.

Share repurchases declined sharply in Q2 2019. | Source: The Wall Street Journal.

As Hacked reported three months ago, buybacks have been a major catalyst of the bull market, so much so that, without them, the major indexes would be sharply lower than where they are now.

Data from Ned Davis Research show that the S&P 500 Index would be 19% lower than its first-quarter levels had it not been for massive share repurchases.

If repurchases continue to decline, investors can expect higher volatility that will only be compounded by U.S.-China trade tensions and a slowing global economy. As WSJ notes, the decline in buybacks…

“… is a sign that corporations are potentially tightening their wallets as executives grapple with new tariff threats in the long-simmering trade dispute with China; weakening corporate earnings; signs of a downturn in global growth; and uncertainty over the Federal Reserve’s interest-rate policy.”

Fed Minutes Coming

Monetary policy is on the agenda Wednesday as the Federal Reserve releases its latest meeting minutes. On July 31, the Federal Open Market Committee (FOMC) voted to lower interest rates for the first time in almost 11 years. The minutes provide a transcript of the deliberations that led to the decision, which was widely expected by the markets.

President Trump is urging the Fed to cut interest rates by “at least 100 basis points” to ensure the U.S. economy continues to grow. He also called for a new round of quantitative easing, something that would have seemed unfathomable just a few years ago.

The Fed is just one of several central banks that is easing monetary policy. Central banks in New Zealand and Australia have also cut interest rates, while the European Central Bank is said to be considering new stimulus measures later this year.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi