The biggest buyer in the market is stepping away, here’s what it means for stocks

Corporate buybacks declined in the first quarter, but if history is any indication, it could actually be a good thing for the markets.

Data from S&P Global showed that S&P share buybacks fell 6.3 percent in 2016 from the previous year. On CNBC's "Trading Nation" on Wednesday, Ari Wald of Oppenheimer said investors shouldn't be concerned about the decline in S&P buybacks. Looking at a chart of the S&P 500 Buyback Index, an index that tracks the top 100 stocks with the highest buyback ratios in the S&P, Wald says that history could be hinting at good times ahead for stocks.

"What's interesting is that the performance of the stocks with the most buybacks did indeed peak ahead [of a broader market peak in October]," he said. "So in the past, it has been a good warning sign."

In other words, declining buybacks in June 2007 actually preceded the market's highs in October of that same year. This leads Wald to look at today's markets and remain unconcerned.

"This time around, we have this index breaking out to new highs, so you haven't seen the same type of weakness in these shares," he added.

Chad Morganlander, portfolio manager at Stifel Nicolaus, also believes the decline in buybacks isn't necessarily a bearish sign, but warns that it may present a "modest headwind to earnings." At the same time, he believes that the number of buybacks will remain lower for the foreseeable future.

"Valuations are pretty high at this point, and that would actually be somewhat cautious," he said. "Also, you're going to have this new tax code that's going to come out for corporations, and a lot of these companies have been issuing debt to do these buybacks. So they're probably going to take a step back for the next several quarters to see how that also pans out."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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