What Will Make The Market Go Down

The most common bullish argument I have been hearing recently is that there is nothing that would make people sell. Investors are not the only buyers and sellers of stock, as corporations buy and sell stocks as well. Bank of America sold $19 billion in stock yesterday. We have found our seller.

How big is $19 billion in the grand scheme of things? During stock market mania in 1999 and 2000 the largest monthly inflows into stock mutual funds were between $30 and $40 billion. The $19 billion amounts to more than half of record monthly inflows during a mania, except it is an outflow.

If this were an isolated incident it might only cause a slight hiccup. However, it is likely that more stock issuance is forthcoming. There are numerous possibilities for more issuance:
  • This could cause other major banks such as Wells Fargo to issue shares in order to repay TARP. The government had been significantly increasing pressure on BAC before they finally caved. Now the government can focus on other banks.
  • Citigroup has been urging the government to sell their $30 billion stake. That would be a monster issuance.
  • The government has begun selling off TARP warrants, which will have a negative effect.
  • Non financial companies have also been selling shares to delever from time to time.
  • The IPO calendar is getting very full.
If corporate selling gets the ball rolling on the downside, we will see what kind of conviction recent buyers of stock have.

1 comment:

nicasurfer said...

Even though it is not a large amount. Insider selling is reaching all time also. For example Ronald Johnson sold 200,000 shares of aapl yesterday.