Stock market rally loses steam after being driven by defensives and buybacks

Markets fell on Wednesday.

The S&P 500 fell 0.1 percent, its fourth consecutive decline, the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.5 percent.

Stocks fell despite the approaching meeting between US President Donald Trump and Chinese President Xi Jinping at the Group of 20 meeting in Japan later this week.

“I am not optimistic of anything of significance to be achieved for the meetings in Japan this week,” said Mariann Montagne, a portfolio manager at Gradient Investments.

Some analysts also noted that US stocks are already near all-time highs.

“If it’s trade or another factor, the market does feel vulnerable to a setback,” said Jeff Kleintop, chief global investment strategist at Charles Schwab.

Indeed, JP Morgan has noted that the recent US stock market rally has been driven by defensive stocks rather than cyclical stocks.

“Rally leadership doesn’t inspire a lot of confidence yet,” said Jason Hunter, a chart analyst at JP Morgan. “In our view, that cross-market divergence can only persist for a short period of time, and the S&P 500 Index rally potential is limited under the current conditions.”

One thing that appears to be supporting the stock market though is stock buybacks.

“Really, the main marginal buyer of the public equity asset class has been companies, not your regular investor,” said Robert Buckland, chief global equity strategist and managing director at Citi Research.