• 263 days Could Crypto Overtake Traditional Investment?
  • 267 days Americans Still Quitting Jobs At Record Pace
  • 269 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 272 days Is The Dollar Too Strong?
  • 273 days Big Tech Disappoints Investors on Earnings Calls
  • 274 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 275 days China Is Quietly Trying To Distance Itself From Russia
  • 276 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 280 days Crypto Investors Won Big In 2021
  • 280 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 281 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 283 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 283 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 287 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 287 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 288 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 290 days Are NFTs About To Take Over Gaming?
  • 290 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 293 days What’s Causing Inflation In The United States?
  • 294 days Intel Joins Russian Exodus as Chip Shortage Digs In
  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