U.S. stocks have rebounded, but don't count on a big rally by year-end.
US stocks appear to be stabilizing after the recent sell-off, and even a temporary outage at the Chicago Mercantile Exchange (CME) that disrupted early trading didn’t completely derail the market’s recovery.
So, can US stocks continue their rally into year-end?
Bloomberg macro strategist Simon White’s latest analysis points out that the internal upward momentum in US stocks is fading, compounded by a significant slowdown in buybacks, making the chances of a strong rebound by year-end extremely slim.
He believes that, stripping away short-term noise and examining the deeper logic of factor rotation, the upcoming market for US stocks can only be described as “lackluster.”
Buyback “engine” stalls: Aftermath of tech giants’ capital spending
Just as ducks sense the warming of the spring river first, shifts in market style are often the most honest reflection of capital flows.
Simon analyzes that since the start of the year, the brightest performers in US stocks have been the “momentum” and “trading” factors. The former represents a basket of stocks with the strongest performance over the past year, and the latter points to stocks with the highest trading volume—these stocks have been market favorites, especially amid a backdrop of surging buybacks in 2025.
However, the winds have shifted over the past month. Based on the latest factor performance, the “value” factor has unexpectedly surged to the top; next is “momentum”; while the previously leading “trading” factor has plummeted to the bottom.
Simon thus infers that “corporate buybacks,” one of the main drivers of this bull market, are retreating rapidly.
Simon further analyzes that although seasonally, November and December are usually buyback hot periods, whether this tradition can continue in 2025 remains to be seen. The reason is that the tech sector has been the main force in buybacks this year, but after a year of aggressive capital spending, the giants’ balance sheets are no longer as “flush” as at the start of the year. This will likely limit the tech sector’s ability to carry out large-scale buybacks by year-end.
When the “momentum factor” can’t beat the index
If the buyback engine stalls, can pure market momentum support a rally into year-end? The data is not encouraging.
The market is currently experiencing a dangerous technical divergence: the pure “momentum factor” has, on a quarterly basis, started to underperform the S&P 500 itself.
Simon White analyzes two types of market states:
- Positive regime: When the momentum factor outperforms the index, market rallies tend to be healthy and strong.
- Negative regime: When the momentum factor underperforms the index—as seen in recent months—this usually corresponds with flat index returns, or even negative performance.
Looking back over the past 25 years:
- During “tailwind” periods when momentum beats the index, the market’s average daily return is 0.35%;
- During “headwind” periods when momentum lags the index, the figure drops sharply to 0.22%;
- For reference, the market’s long-term average daily return is 0.30%.
Evidently, the current market is in a “headwind” period with below-average returns.
However, Simon also believes that, for now, investors needn’t be overly pessimistic, since overall market liquidity remains abundant, providing a solid floor for US stocks; the risk of a crash or deep correction is not on the horizon for now.
But just because there’s support at the bottom doesn’t mean there’s upside ahead. With both a weak momentum factor and limited corporate buybacks due to constrained capital spending, expecting a “fireworks show” style surge in US stocks by year-end is likely unrealistic.
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