In the period before earnings releases, public companies face greater restrictions to buying back their own shares, known as a “buyback blackout period.” By the end of last week, about three quarters of S&P 500 companies have reported earnings, according to FactSet. So the buyback announcements have now begun, with companies ranging from Estée Lauder Companies to Intercontinental Exchange announcing purchases of their own shares.
But these repurchases are not likely to power the stock market beyond its recent peaks. Companies in the S&P 500 index are on track to buy back 30 percent less in stock than they did in the second quarter.
And investors are no longer rewarding companies that buy back their own stock. Since the Federal Reserve began raising rates in December 16, 2015, the Invesco Buyback Achievers fund has gained 28 percent, compared with a 33 percent gain for the S&P 500 index over the same period. In other words, a fund that purchases shares of companies that have consistently bought back their shares hasn’t outperformed the S&P 500.
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