Traders are preparing for a difficult time for US stocks due to the temporary suspension of corporate stock buybacks, an important support point due to the lockdown period before results were announced.

According to Deutsche Bank data, over 80% of companies in the S&P 500 index have suspended share repurchases this week. By comparison, this figure was less than 5% a month ago. Stable demand brought about by buybacks provided key support for US stocks in 2024, but this support will disappear before most US companies exit the sales ban period in early May.

YunGyu Ma, chief investment officer of BMO Wealth Management, said on the phone: “As companies increasingly see buybacks as a way to return capital to shareholders, buybacks have become a huge support for the stock market. And this may increase the volatility of US stocks over the next month, because there is a lack of a key source of continuous buying from companies.”

The technical side also indicates that an economic downturn may be imminent. Although earnings growth forecasts indicate that the US economy will continue to be strong, market correlation is falling to a multi-year low. This indicates that the pace of increase in US stocks may slow down.

For example, according to data compiled by Bloomberg Intelligence, the average matchmaking correlation for the S&P 500 over the next month is only 0.19, which is nearly 1 standard deviation below the average since 2000. Furthermore, since 2000, when the correlation was below 0.19, the three-month forward return of 0.04% for the S&P 500 index was 0.04%, far lower than 2.4% when the correlation was higher than 0.19.

BI stock strategist Gillian Wolff (Gillian Wolff) commented: “This shows that the stock market is a bit too fanatical.”

Wolff said that historically, when investors are bearish, correlation soars because stocks are widely sold off. However, when bullish, stocks usually don't rise all at once; instead, a specific theme is emerging to drive the bull market, making investors more selective, similar to the current frenzy surrounding artificial intelligence.

Wolf said this caused some stocks to rise and some to fall because investors would switch to the sectors they think would benefit the most from the bull market, making them less correlated.

Meanwhile, the three most economically sensitive sectors in the stock market, semiconductors, homebuilders, and transportation companies, have recently broken through new highs, but seem to be losing momentum. Of course, these three are still on a strong upward trend, but they lost momentum in the third quarter of last year, causing the S&P 500 index to fall briefly. This “past record” made traders keep a close eye on its trends.

Currently, the market's biggest hope may be for people who buy on dips. Brooke May (Brooke May), managing partner of Evans May Wealth (Evans May Wealth), said the company is actively exploring opportunities to buy at bargain prices. For example, DR Horton shares are being laid out in hopes that suppressed demand for home purchases will stimulate more construction projects in the next few years.

Mei said, “We fully expect the stock market to pull back about 5% to 10% in the next few months until interest rate cuts are imminent. Rebooting (the market) would be very beneficial.”