• 349 days Will The ECB Continue To Hike Rates?
  • 349 days Forbes: Aramco Remains Largest Company In The Middle East
  • 351 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 750 days Could Crypto Overtake Traditional Investment?
  • 755 days Americans Still Quitting Jobs At Record Pace
  • 757 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 760 days Is The Dollar Too Strong?
  • 761 days Big Tech Disappoints Investors on Earnings Calls
  • 761 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 763 days China Is Quietly Trying To Distance Itself From Russia
  • 763 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 767 days Crypto Investors Won Big In 2021
  • 768 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 768 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 771 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 771 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 774 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 775 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 775 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 777 days Are NFTs About To Take Over Gaming?
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