Tuesday, February 26, 2019

The Power of Buybacks

Is this market rally being fueled solely by buybacks? In the fourth quarter last year, American companies bought an estimated $240 billion of their own shares, according to an analysis by Goldman Sachs. That’s nearly 60 percent higher than during the same period in 2017.

More buybacks are coming. The Union Pacific railroad has bought nearly $32 billion in its own shares since 2007, and this month authorized buying over $20 billion more. Cisco has spent roughly $20 billion on buybacks in the past year, and has authorizations to spend another $24 billion. And Bank of America, which planned to buy $20 billion of its own shares by the end of June, just added $2.5 billion on top of that.

Meanwhile, individual investors remain nervous. Despite the market's strength, in every week this year, money has flowed out of domestic stock market mutual funds and exchange-traded funds — as much as $15 billion in the last week of January, according to EPFR Global.

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