Choppy Till March

The amount of issuance of stock is starting to catch up with the market, as investor inflows and stock buybacks are met with supply.  There is a limit to how much corporations can lever up to buy back their own stock.  Who is going to buy corporate bonds from an already levered out company when the economy is slowing down?

Corporate bond market spreads over Treasuries will be a canary in the coal mine.  The worst case scenario for this market is to see corporate bond spreads blow out, financials underperform, and breadth deteriorate.  Right now, the stock market is pricing in something that appears unlikely to these eyes: an economy that can stand on its own without increasing asset prices and/or increased deficit spending.  With investors finally getting positive about stocks and pouring money in, you have already used up a lot of potential buying power from the retail crowd.  Thus, these inflows will buoy the market on dips for a few months, but the increase in stock supply will dampen any rally attempts, leading to flat, but choppy markets.  By the middle of next year, I see the market having the biggest shakeout since 2011, falling from its own weight of overvaluation and optimism.