Interview with Alexander Lis, Chief Investment Officer, Social Discovery Ventures (SDV)

The Hidden Force Behind the Bull Market: Can Stocks Keep Rising If Equity Supply Returns?

Most investors focus on earnings, valuations, and Fed policy. But one of the biggest drivers of the bull market has been negative net equity supply – companies buying back more stock than they issue. The key question now is whether that dynamic is changing.

As AI spending accelerates, companies may need to rely more heavily on external capital through equity and debt issuance, or reduce buybacks and other cash distributions. At the same time, investors are trying to assess what a potentially more dovish Fed means for liquidity conditions. The intersection of these two trends may matter more for future market returns than earnings growth alone, argues Alexander Lis, a market analyst with 15+ years of experience across public and private markets, and CIO at global investment firm SDV with $500M AUM.

Investors spend a lot of time talking about earnings and Fed policy. Why are you focusing on equity supply?

While earnings and Fed policy are both important and get most of the attention, they only tell half the story. Earnings show us the fundamentals, and monetary policy helps gauge investor demand, especially for leveraged products. However, it is equally essential to analyze the supply side. At the end of the day, the balance between supply and demand determines equity prices. This is why tracking equity supply is just as important as monitoring Fed policy, earnings, and economic growth.

How important have buybacks been in supporting the current bull market?

According to Goldman Sachs, S&P 500 buybacks averaged $948 billion annually from 2021 to 2025. Given that the index’s average market capitalization over that five-year period was roughly $45 trillion, buybacks accounted for about 2% of total market cap. While the direct mathematical impact may seem modest, its consistency is significant. More importantly, buybacks provided a steady floor of demand, effectively soaking up equity supply during periods of high share issuance.

Is that changing now?

This dynamic is poised to shift in 2026. Goldman Sachs projects that aggregate S&P 500 CapEx, R&D, and M&A expenditures will climb by $775 billion this year. Because companies are unlikely to cover these incremental costs out of free cash flow alone, they face two options: cut cash distributions (dividends and buybacks) or issue new debt and equity. In all probability, we’ll see a combination of both. 

How does the AI investment boom fit into this picture?

The AI investment boom relies heavily on hyperscaler CapEx, making their ability to fund these substantial outlays essential. Regardless of the exact mix, heavy debt issuance or buyback reductions to support this incremental increase in CapEx are bound to impact net equity supply materially. If the markets can smoothly absorb this extra supply, the core AI investment thesis remains intact. 

So far, however, the markets appear unprepared for this wave of issuance. While semiconductor stocks continue to perform strongly, hyperscalers have delivered lackluster performance, and newly public SpaceX is trading well below its opening price.

This marks a major change. For years, the market cheered every CapEx guidance increase. Today, investors are pushing back on the reality that these tech giants must raise considerable capital for infrastructure buildouts. This dynamic will likely force CEOs to pivot. While one option is to drastically scale back share buybacks, this would have a similar impact on net equity supply as issuing new equity, since reducing buybacks and increasing issuance are economically almost equivalent. The more impactful alternative would be to trim CapEx plans by postponing major projects, a move that would inevitably hit the high-flying semiconductor stocks hardest.

What role does the new Fed play?

It is no coincidence that the previous peak in net equity issuance occurred during the pandemic, when the Fed aggressively expanded its balance sheet. An accommodative monetary stance is essential for sustaining investor appetite for new supply. First, easy financial conditions support broader economic growth, leaving investors with more capital to allocate to equities. Second, abundant liquidity compresses fixed-income yields, prompting a secular shift from bonds to stocks. Finally, lenders become far more willing to extend leverage, providing market participants with the necessary capital to absorb newly issued shares.

What is the biggest risk investors are missing today?

The single most overlooked risk in the market today is the stark structural mismatch between an upcoming wave of stock and bond issuance and a Fed balance sheet policy shifting from accommodative to neutral. Frankly, something has to give. Either the Fed will be forced to expand its balance sheet again to provide liquidity, or corporations will have to drastically curb their appetite for fresh issuance. It has to be one or the other.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.