Thursday, November 7, 2019

Peak Buyback

Corporations are on pace to provide $480 billion in bids for S&P 500 stocks this year, according to an analysis by Goldman Sachs. That means that stock buybacks will have provided more demand for equities than any other source in 2019, including households, mutual funds or exchange-traded-funds.

How much money is that? Look at it this way: In 2019, S&P 500 companies paid out more than 100 percent of their free cash flow in the form of dividends and buybacks.

But this key source of market support may have already peaked. One study shows that Russell 3000 small-cap companies have announced $795 billion in buyback authorizations in 2019, a 12 percent decline from the roughly $900 billion authorized last year. Overall, Goldman Sachs predicts that share repurchase authorizations will fall another 5 percent in 2020.

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