Buybacks are a crucial backbone of the stock market. But Goldman Sachs says they're weakening - and warns these 15 stocks are most vulnerable.

REUTERS/Brendan McDermid

• Stock buybacks have helped keep the more than 10-year bull market going, but they're slowing for the first time in a decade, and Cole Hunter of Goldman Sachs says that decline will continue in 2020.
• The decrease in buybacks weakens a key source of stock market support, and Hunter says he's found a group of companies that look especially vulnerable: stocks that get a large portion of their daily trading volume from repurchase activity.
• Hunter says a series of factors including trade uncertainty, slowing corporate profits, and political scrutiny are all poised to depress corporate buyback spending.
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No winning streak lasts forever, and that includes Wall Street's impressive run of share repurchases.

Buybacks have been a core component of the bull market over the last 10 years, and in 2019 they're set to decline for the first time since then. Goldman Sach estimates that spending on repurchases will fall 15% this year and another 5% in 2020. That's the first decline - and then the second - since 2009.

Strategist Cole Hunter says a slew of forces are curtailing spending.

"Cash balances have inflected dramatically lower, leverage for the typical S&P 500 stock recently achieved a new all-time high, and policy uncertainty is elevated amidst an intensifying trade conflict with China and the upcoming US presidential election," he wrote in a note to clients.

Buyback spending was juiced in 2018 by the just-passed Tax Cuts and Jobs Act, so some degree of slowing after that might not be a surprise. But the Hunter adds that stock repurchase growth tends to track earnings growth, so a slowdown in earnings will continue to erode that spending in 2020.

Read more: Wall Street has fallen in love with stocks that pay big dividends, and Goldman says they're still the cheapest in a decade. Here are the 13 the firm recommends most.

If all that weren't enough, prominent politicians say companies are spending too much money on buybacks and it might be time to rein it in.

"While we believe restrictions on share repurchases are unlikely to be enacted in the near term, the escalation in political rhetoric represents a clear risk to our forecast," Hunter said.

An extra complication for the market is that a small number of companies is responsible for a bigger and bigger chunk of stock buybacks. Hunter says that in the first half of this year, just 10 companies were responsible for 37% of the repurchase spending for the entire S&P 500.

In the search for companies that are vulnerable to the buyback slump, Hunter says he's most concerned about companies that get an outsize portion of their trading volume from buyback activity.

He's created a list of companies on the Russell 1000 index that might be especially vulnerable based on their trading volumes over the past three years. Each of these 15 companies gets at least 5% of their average daily trading volume from net repurchases. By comparison, the median Russell 2000 company gets 0% of its volume from that source.

Read more: Investors are paying record amounts for stable high-growth companies. Here are 12 sleeper stocks Goldman says can deliver growth at budget prices.

Here's the full list of 15, ranked in increasing order of daily trading volume from buybacks: