Don’t like the market? Wait a day and it’ll get better.

That’s a stock strategy that worked in 2014 like no time in six years, with declines in the Standard & Poor’s 500 Index (SPX) averaging 1.5 days, data compiled by Bloomberg show. It succeeded as companies spent about $2.7 billion a day on buybacks through the third quarter, on pace for the second most on record, according to data from Birinyi Associates Inc.

The biggest bull market since the 1990s powered higher again as $1.1 trillion was added to American share values and the S&P 500 overcame five separate declines of 4 percent or more to rally 13 percent. Stocks climbed for a third year as economic growth accelerated and corporate profits increased almost 9 percent for the sixth straight annual gain, according to data compiled by Bloomberg and S&P Dow Jones Indices.

“Investors and traders over the last number of years have been conditioned to buy on the dip,” said Quincy Krosby, a market strategist based in Newark, New Jersey, at Prudential Financial Inc., which oversees $1 trillion in assets. “This year was no exception.”

Stocks have dropped on 107 days in 2014, two more than in 2013, and never once declined more than three straight times, a first in data compiled by Bloomberg going back to 2000. Stocks jumped an average of 0.1 percent on days after they fell, helping underpin a 235-point advance in the S&P 500 that pushed its 10-year annualized return to 7.8 percent. It was minus 4.5 percent as recently as March 2009.

Companies are doing what they can to keep shares aloft. Through the first three quarters of the year they spent $515 billion on repurchases, a rate that were it maintained would trail only 2007 for the highest level ever, Birinyi data show.

“It helps to backstop the market when you know companies are out there executing on their buyback plans,” David Lafferty, who helps oversee $894 billion as the chief market strategist for Natixis Global Asset Management in Boston, said in a phone interview. “It’s a pretty positive signaling mechanism to management that they still have faith in their own shares.”

David Fuller's view

The last sentence above is telling.  Yes, management presumably still has faith in its own shares.  More importantly, they know that buybacks remain the best way to reward themselves, even though some companies have borrowed to raise buyback funds. 

This will not last forever.  Nothing does, not least in markets. Meanwhile, buybacks continue to flatter corporate earnings.  This has rewarded shareholders, particularly big activist investors such as Carl Icahn.  However, their interest in any specific share seldom lasts beyond the medium-term.  The shares to watch out for are those which borrow to fund buybacks and / or pay arguably more than fully priced multiples for these repurchases. 

Currently, the bulls are still in charge, and likely to remain so during at least the first half of 2015.  Conditions may be choppy, starting with a reaction and consolidation which commenced on Tuesday and is likely to carry on into January.  However, this will be an opportunity rather than a problem, provided it remains within the S&P 500 Index’s uptrend, meaning that it does not break the 200-day MA for more than a brief period of a week or two.  

(Please note: the S&P chart was taken before Wall Street's close.)