If you're a stock market bull, beware this chart

Published Thu, Aug 11 20162:18 PM EDT

With the major stock indexes at record highs, Wall Street is increasingly concerned about the loss of a powerful buying source that may foretell the end of the bull run. Multiple firms sent clients research this week worried about the deterioration of corporate stock buybacks in 2016. Source: Birinyi Associates Year-to-date corporate stock buyback authorizations are down 29 percent year over year, according to Birinyi Associates. July was even worse with buyback authorizations down 36 percent year over year, the firm told clients Wednesday. This could be a problem for the future as corporate buybacks were a key driver of the seven-year bull market. S & P 500 companies have bought back $3 trillion of their shares since 2009, according to Yardeni Research. "The flood of money going into bonds has indirectly fueled the bull market in stocks by financing stock buybacks," Ed Yardeni wrote in a note to clients Wednesday. We "have been arguing for a long time that the bull market has been driven mostly by corporations buying back their shares, not by investors buying stocks because they have no choice." Moreover, companies are using more debt to fund share buybacks, which doesn't bode well for the sustainability of the programs going forward. Year to date, 39 percent of stock buybacks were funded by debt versus 22 percent last year, according to JPMorgan. "While this portion is the highest since the dot-com bubble, the majority of stock buybacks still remain funded with internally generated funds rather than debt," JPMorgan's Dubravko Lakos-Bujas wrote in a note to clients Monday. The deteriorating stock buyback trend is already hurting the relative performance of companies with large buybacks versus the S & P 500 and dividend stocks year to date. One strategist told investors to be wary of the market due to this divergence. Source: BGC "With S & P at all-time highs, we remain flat shares ... but still skeptical on the market, largely because of loss of buy-back leadership," BGC's Steve Cortes wrote in a note to clients Thursday.

Susana Vera | Reuters

Stock buyback authorizations

Source: Birinyi Associates

Year-to-date corporate stock buyback authorizations are down 29 percent year over year, according to Birinyi Associates. July was even worse with buyback authorizations down 36 percent year over year, the firm told clients Wednesday.