• 14 hours Contrarian Investors Are Beating The Stock Market
  • 17 hours Bulgaria’s Revenue Agency Falls Victim To Biggest Cyber Heist In History
  • 20 hours Amazon Faces European Union Anti-Trust Probe
  • 22 hours Commodities Are Having A Stellar Year
  • 2 days Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
  • 2 days 3,600 Years Later, Climate Change Turns Mammoths Into $40M Market
  • 2 days Tesla, Apple Claim China Is Stealing Intellectual Property
  • 2 days EV Giants Duke It Out For Battery Dominance
  • 3 days Tech Billionaire Takes Aim At Google
  • 3 days Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 3 days Expect A Pullback Before Gold's Next Major Rally
  • 3 days Why Interest On Gold Matters
  • 4 days Ten Extravagant Food Items For The Wealthy Only
  • 4 days Why Saudi Arabia Won't Give Up On The Aramco IPO
  • 5 days $32 Million Crypto Heist Halts Tokyo Exchange
  • 5 days Is A Gold Selloff Looming?
  • 6 days Central Banks Are Stashing Gold And Dumping Treasuries
  • 6 days Three Cannabis Trends Flying Under Investors’ Radars
  • 7 days $1.3 Billion In Cocaine Found On JPMorgan Vessel
  • 7 days Amazon Teams Up With Lady Gaga To Win Over Generation Z
The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

  1. Home
  2. Markets
  3. Other

Stock Buybacks Fueling the Stock Market? By How Much?

Here's the question of the day: are corporate stock buybacks fueling the stock market?

Let's look at a couple of charts and a news report to help determine the answer.


Quarterly Stock Buybacks

Quarterly New Stock Buybacks

Stock buybacks are at a nine-quarter low according to an Email TrimTabs press announcement.

"Buybacks have been trending lower for the past two years, which is a cautionary longer-term signal for U.S. equities," said Winston Chua, analyst at TrimTabs. "Along with central bank asset purchases, buybacks have been a key pillar of support for the bull market."

"The U.S. stock market isn't likely to get as much of a boost from buybacks as it did in recent years," noted Chua. "Apart from big tech firms and the too-big-to-fails, fewer companies seem willing to use lots of cash to support share prices."

There are numerous references to that announcement, but until now, nobody checked to see if the relationship was in fact true.


S&P 500 vs. Volume Lows in Share Buybacks

S%P500 versus Volume Lows in New Buybacks

If there is a relationship, I fail to see what it is, at least by looking at the chart.

That does not mean there is no relationship. Rather, it does not show up.

Logic would dictate that share buybacks lower P/E ratios thereby boosting earnings, making stocks look more reasonably priced.

But if reasonable P/E logic was in play, P/E's would not be as ridiculous as they are. Then again, Wall Street charlatans point buybacks and forward P/Es as evidence the stock market is cheap.


Competing Theories

  1. Stock buybacks are still sufficient to fuel the stock market
  2. Something else is happening, such as another Fed-sponsored mania

#2 is a given. #1 certainly doesn't hurt. But market sentiment is so strong now, stock buybacks just may not matter much at all.

When stock market sentiment turns, I strongly suspect buyback announcements will be meaningless.

 

Back to homepage

Leave a comment

Leave a comment