• 19 hours Silver Stocks Have Been Decimated In The Coronavirus Sell-Off
  • 2 days How Blockchain Tech Could Make Mergers And Acquisitions More Efficient
  • 2 days America’s Shortage Of This Metal Keeps Trump Up At Night
  • 3 days Bidet Bonanza: Defying The Toilet Paper Shortage
  • 3 days U.S. Auto Sales Fall By 75%
  • 4 days Violating Quarantine? Big Brother Is Watching
  • 4 days Does Gold Still Have Some Room To Run?
  • 4 days Major Acquisition Gives The World’s First Green Ride-Share Another Edge
  • 5 days U.S. Pushes For Digital Currency For Immediate Stimulus
  • 5 days The Impossible Challenges Created By Growing Population
  • 5 days Gold Skyrockets After Fed Pledges "Unlimited" Cash To Boost Economy
  • 6 days World’s Richest Lose $1 Trillion In Stock Market Rout
  • 6 days Gas Stations Shut Down In Venezuela As Coronavirus Crisis Intensifies
  • 6 days The Best And Worse Case Scenario For The U.S. Stock Market
  • 7 days 3 Industries Soaring During The Coronavirus Crisis
  • 7 days The Key To Commercial Hydrogen
  • 8 days Gold Still Beating Much Of The Market Despite Sell-Off
  • 8 days Gold Miners Struggle With COVID-19 Fallout
  • 9 days The Dollar Reigns Supreme In Times Of Crisis
  • 9 days The Most Exciting Green Startups To Watch In 2020
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

Contact Author

  1. Home
  2. Markets
  3. Other

Corporations - And Corporate Execs -- Fall Out Of Love With Their Shares

It's no secret that one of the main things propping up the US stock market has been corporations' willingness to buy back their own shares with borrowed money. The following chart illustrates the rather amazing correlation between share repurchases and share prices.

Stock Buybacks

This was obviously a short-lived strategy, one that would end when companies got so leveraged that borrowing more started to look pathological rather than wise. And that time may have come:

U.S. Buyback Announcements Tumble to a 2012 Low

(Bloomberg) - Stock buybacks appear to be slowing down, suggesting either corporate America's outlook has dimmed, stock valuations have become prohibitively high or, most optimistically, that companies are starting to listen to investors and put funds toward other uses.

Buybacks announced for the second quarter's earnings season between July 8 and August 15 totaled an average of $1.8 billion a day, the lowest volume in an earnings season since the summer of 2012, according to TrimTabs Investment Research.

Share repurchases have been a key driver of this year's stock market rally, despite a notable deceleration relative to to the same period in 2015. In the first seven months of 2016, buybacks totaled $376.5 billion, according to TrimTabs. That's down 21 percent from $478.4 billion in the first seven months of last year. Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings.

"The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead," David Santschi, chief executive officer of TrimTabs, said in a press release on Tuesday. That means "buybacks aren't likely to provide as much fuel for the stock market as they have in the recent past."

But wait, there's more. It seems that corporate insiders understand the upward pressure they've exerted with all their leveraged buying - and that without it many stocks are sitting on some serious air pockets. So in the best tradition of the 1%, they're sticking their remaining shareholders with that eventual bill by dumping their own shares at a record pace:

Corporate insider selling surges as market hits record

(CNBC) - Corporate insiders are taking profits as U.S. equities rise to record levels, according to the new Vickers Weekly Insider Report from Argus Research.

Based on data that examines the ratio between buying and selling among corporate executives, the rate of net insider selling reached the highest level since June 2015. That surge preceded a previous market high when the Dow was pushing over 18,000 for the first time ever, according to Richard Cuneo, senior vice president of operations at Argus Research.

A crucial sentence from the first article: "Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings." So not only are companies buying fewer shares, they, along with their insiders, are starting to sell.

The result of this change in the supply/demand calculus should, other things being equal, be lower share prices. Which would vindicate the lengthening list of heavy hitters (Gross, Soros, Icahn) who have gone bearish lately.

 

Back to homepage

Leave a comment

Leave a comment