US companies set off a wave of buybacks, trillions of "ammunition" to help US stocks rebound
With the severe pullback in the US stock market, US companies are engaging in large-scale stock buybacks to support the market recovery. This week, Goldman Sachs and Bank of America received record-breaking stock buyback orders, with buyback levels exceeding seasonal levels for 22 consecutive weeks. It is expected that the buyback volume in 2024 may exceed $1 trillion. This buyback frenzy demonstrates the health of the companies, and although buybacks are often criticized, fund managers welcome this trend
According to the financial news app Zhitong Finance, amid the most severe pullback in the U.S. stock market since October last year, American companies were among the big buyers buying on dips. As the S&P 500 index fell for the fourth consecutive week, the department at Goldman Sachs responsible for executing stock buybacks received record orders, with trading volume soaring to 2.1 times the daily average level last year. Corporate clients of Bank of America also sparked a buying frenzy, with their stock buyback pace accelerating, remaining above seasonal levels for 22 consecutive weeks.
The buyback frenzy coincides with the market recovery, with the S&P 500 index regaining more than half of the summer decline. Against the backdrop of renewed concerns about economic growth and stock valuations, American corporate buybacks have become an important force supporting the stock market.
As the second-quarter earnings season nears its end, companies are emerging from a lull in buybacks. From the announced plans, their demand is expected to remain strong. This is good news for both large and small investors looking to buy stocks on dips.
Jeff Rubin, President of Birinyi Associates, said: "You see a lot of companies announcing buybacks, and the actual execution indicates that American companies are still healthy." He added that since January, 775 companies have announced buyback plans, potentially reaching the highest level in at least 11 years.
Birinyi's data shows that U.S. companies have announced plans to repurchase $826 billion in stocks this year, up 15% from the same period last year. Rubin estimates that the actual buyback volume in 2024 could exceed $1 trillion.
Goldman's trading department is less optimistic, forecasting a full-year actual buyback volume of $960 billion. However, if companies follow the historical pattern where August and September account for about 21% of the total annual buybacks, the daily purchasing power in the coming weeks could be equivalent to $4.75 billion.
The practice of spending money on stock buybacks has repeatedly been criticized by politicians and scholars, who argue that this cash is best used to promote long-term growth, such as for employee benefits or equipment upgrades. Last year, a law imposing a 1% tax on buybacks took effect.
However, fund managers welcome this buyback frenzy. The latest monthly survey by Bank of America shows that for the first time since 2021, investment experts are suggesting that CEOs should prioritize shareholder returns over capital expenditures.
In the survey, 28% of fund managers urge companies to increase returns through stock buybacks, dividends, or debt-financed acquisitions, the highest level since November 2013. Meanwhile, only 24% of respondents hope for an increase in capital expenditures by corporate leaders, the lowest level since November last year