2022 is certainly off to an inauspicious start. Spring hasn’t even fully sprung yet investors’ nerves are already frayed thanks to a hawkish Fed pivot, the highest inflation in decades, and even war. Equity volatility has surged and talk of recession has started to permeate financial media thanks to a flattening yield curve. And yet, despite all the gloom & doom, over the past couple of weeks stocks have found their footing with the S&P 500 Index rallying more than 10% off its intraday low back on February 24th. Who has bravely entered the fray to buy when so many others are selling? It’s clear that at least part of the answer lies with US corporations buying back their own stock.
Estimates from Goldman Sachs show that buyback authorizations have already surpassed $300 billion this year, which puts them on track to exceed last year’s annual record of approximately $1.2 trillion. This is largely thanks to record profits that allows companies to not only hire more workers and increase their capital expenditures but also to purchase their own shares. In some cases, these shares are very much on sale after significant corrections in certain parts of the market, making it even more enticing to execute buyback programs.
Another important factor for keeping the buyback train rolling is whether or not credit markets remain open. At the moment, they remain fully open for business – March has seen investment grade corporate bond issuance clock in at a whopping $200 billion, the fourth highest monthly total ever. Even with higher interest rates this year, CFO’s can still borrow on relatively inexpensive terms to help fund equity purchases.
Buybacks can’t prevent selloffs from happening, but with earnings estimates continuing to ratchet higher and near-record bond issuance they should remain an important source of demand that can help to dampen further bouts of volatility if they occur. Buyback authorizations are on pace to exceed last year’s record level.
US share buyback authorization announcements ($ billion)
Carl Noble, CFA®
Senior Vice President of Investments
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