Business & Investment

Buybacks by U.S. companies are on the rise, raising investor expectations

New York: The level of share buybacks by US companies has risen slowly since last year’s pandemic spending decline, and investors want to know how buybacks support market profits.

This year’s repurchase is unlikely to return to pre-pandemic levels, but recent repurchase stories from companies tend to be repurchased, thanks to optimism about the deployment of vaccines to combat COVID-19. It raised the expectations of investors that it had changed.

Netflix announced last week that it would consider returning surplus cash to shareholders through a share buyback, and investors supported recent buyback announcements from several major investment banks.

Howard Silverblatt, Senior Index Analyst at S & P Dow Jones Index, said: “Companies are starting to put their feet back in the water.” That’s a good sign … it means cash flow is available. ”

The S & P Dow Jones Index project increased share buybacks of S & P 500 companies from $ 102 billion in the third quarter to a total of about $ 116 billion in the fourth quarter of last year.

This is well below the $ 182 billion in the fourth quarter of 2019 and the record $ 223 billion in the fourth quarter of 2018. Repurchases of the S & P 500 are projected to increase from an estimated $ 505 billion last year to $ 651 billion in 2021, based on S & P data.

According to TrimTabs Research, U.S. companies were bullish towards the end of last year when they saw repurchase announcements from U.S. exchange-listed companies, with December repurchase announcements up to 88.4 billion in 15 months. Reached the dollar.

According to S & P, share buybacks at the S & P 500 peaked at $ 806 billion in 2018, when large tax incentives for US companies pushed cash levels up.

Share buybacks are often cited as the primary support for US stocks, and investors are already considering the possibility of record-high US stock support this year. The repurchase reduces the company’s outstanding shares, increases earnings per share, and lowers its main benchmark price-earnings ratio.

Robert Public, Senior Portfolio Manager at Dakota Wealth in Fairfield, Connecticut, said: “The market is as high as it looks, so buying back shares can make the market much higher.

“It adds to Street’s belief that there is an underlying bid, we’re not the only one, and someone else is going to support the stock, and it’s a company,” he said. “It turns out to be good for stock prices, but they run the risk of overvalued stocks, which raises a broader question as to why companies are doing it.”

David Joy, chief market strategist at Ameriprise Financial, said in the 2021 outlook, corporate share buybacks will gradually increase until 2021, but a more favorable scenario “accelerates to pre-pandemic levels.” .. .. ”

Banks in particular are in the limelight.

Following the Federal Reserve Board’s second “stress test” of banks in 2020, which measures a bank’s financial position and determines if it has sufficient reserves to protect it from losses. The Fed of the month has relaxed repurchase restrictions. Shortly thereafter, large companies such as JPMorgan Chase and Goldman Sachs announced that they were planning to buy back their shares from 2021.

JPMorgan’s board of directors has approved a $ 30 billion share buyback program.

The S & P 500 Repurchase Index has tripled in value since the end of the global financial crisis, and recovery from the pandemic recession has been as rapid as a plunge.

Not all industries are ready to buy more at this time, Silverbratt said. This is especially true for hotels, entertainment and other industries that have been particularly hit by pandemics.

Buybacks by U.S. companies are on the rise, raising investor expectations Buybacks by U.S. companies are on the rise, raising investor expectations

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