“Welcome to your life, there’s no turning back.” 

Epic start to a song by Tears for Fears that feels more than appropriate for today: the first day of the year of the Fire Horse. 

According to the Chinese zodiac, the year is associated with intense energy, major transformative change, and challenging the status quo. The last one was 60 years ago in 1966; marked by the escalation of the Vietnam War and the civil rights movement, as well as the beginning of the Cultural Revolution in China.

It feels we are already in the midst of profound change for investors. I wrote in my piece last week that assumptions of the past may not be something to carry forward and included a line I wanted to explore further:

It also means the natural bid under names provided by large stock buybacks over the last decade or more may not be as veracious or consistent, since cash outflows will be more weighted towards  investment.

I wondered: if capex investment is increasing in certain areas, will there be less buybacks and thus less support for stocks? 

To answer this, I looked at share buybacks in the S&P 500. They nearly doubled over the last 5 years, from $500B to $925B in 2025. The top 20 largest stocks in the S&P 500, which make up about 50% of the market cap of the index, also made up a high percentage of the buybacks, at about 40% ($350B), of the 2025 total buybacks. And 6 of the 20 increased their capex as a % of sales by double digits or more. As a result of this, and based on past buyback changes relative to past and expected capex changes, we estimate share buybacks from this group could be materially lower, reducing overall share buybacks for the S&P 500 stocks by up to 5% ($42B). 

In addition to less buyback demand, could equity supply increase with the rising number of actual and potential IPOs? 

Yes. According to ListingTracking, IPO activity has been low but growing. So far in 2026, there have been 20, with an additional 41 through SPACs, along with 2 more filed. In addition, 100 IPOs are planned and 52 more have been rumored. If these were to come to fruition this year, that would be the most number of IPOs since 2014 (ex 2021). 

Of course, these are still small numbers compared to the 1990s. The average annual number of IPOs from 1991 to 2000 was 436.

Also, recall IPO activity is a metric to track related to bubbles (as we went through here in October), so worth keeping an eye on this now. 

All in, this further supports the case for stock picking, and the leaders for 2026, falling in sectors outside of where they were in the past. It also supports a market with greater volatility. So, I will leave you with what I shared in our 2026 outlook as a gentle reminder:

Because protecting gains has become as important as loss management. The downside potential, after a strong rally of any particular stock, can be so significant that trimming on a rally and adding on a dip (as long as your core thesis is still there) feels more necessary than ever. 

As the Tears for Fears song goes, “nothing ever lasts forever.”