Part 1 Worries over a top: Was the Meta Platforms 20% pop the market top? An important sign, yes,, but not for the reasons you think

Part 1 Worries over a top: Was the Meta Platforms 20% pop the market top? An important sign, yes,, but not for the reasons you think

I think we’re seeing stocks put in a top. Not immediate–I think we’ve got the impending Federal Reserve interest rate cuts to help stretch out this rally into a sideways move. But the signs are there. And the most important signs aren’t the “overvaluation” of the Magnificent 7 stocks or the narrow leadership in this market. (More on why this top isn’t likely to lead to a Bear Market in tomorrow’s post “Why this isn’t 1999.) Nope. To me the most important sign if the big announcement from Meta Platforms (META) of a $50 billion stock buy back and the initiation of 50 cents a share dividend, the company’s first.

Signs of a market top Part 2: Will an oversupply of new shares take the air out of overinflated stock prices?

Signs of a market top Part 2: Will an oversupply of new shares take the air out of overinflated stock prices?

In most years companies buy back more shares then they sell. That creates a steady upward bias to stock prices simply because there are fewer shares to buy. On average over the last decade companies bought back $3 in stock for every dollar they raised. Not in 2020. For th first time since the global financial crisis year of 2009, companies will issue as much stock as they sell

Signs of a market top Part 1: Looks like a topping market to me–see TSLA, DASH, ABNB, AI for evidence

Signs of a market top Part 1: Looks like a topping market to me–see TSLA, DASH, ABNB, AI for evidence

I see all the signs of a market that’s moved beyond enthusiasm to excess. This stage in a market is called many things. A market melt. Forming a top. You get the idea. We won’t, of course, know if the current levels constitute a top until we get a sustained downturn. And waiting for that confirming downturn can take a while and be very painful if you’ve tried to time the turn with shorts or Put Options and turn out to have been early. The topping process can go on for a while.