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After shepherding cash through much of the COVID War, corporations bought a record $234.5 billion worth of their own stock in this year’s third quarter, surpassing the previous quarterly high mark of $233 billion notched in 2018’s final three months.
The wave of stock buybacks through this year has helped propel the Standard & Poor’s 500 stock index to 67 record closes in 2021 as of 13 December, handing it a 25-percent gain for the year, The Wall Street Journal reported.
That’s not the end of it, analyst Howard Silverblatt at S&P Dow Jones Indices, said to the WSJ, forecasting an additional $236 billion in buybacks this quarter.
In September, Microsoft’s board of directors authorized the company to repurchase up to $60 billion worth of its shares; Hertz Global Holdings, which filed for bankruptcy in May 2020, has said it will buy back $2 billion of its stock, and Dell Technologies plans a $5-billion buyback, the WSJ said.
The buybacks, which reduce the number of shares available to the public, have helped push equity markets to record after record this year, as has the flood of cheap money Congress and the U.S. Federal Reserve have ladled into markets to keep them functioning during the COVID crisis.
As a result, in 2021, overall earnings among S&P companies will be 45 percent higher than in 2020, according to analysts cited by the WSJ.
Buybacks do more than simply boost stock prices.
They also raise per-share profits and signal investors that a company is optimistic about its financial future.
“It’s always comforting to have a management team tell you how undervalued they think their shares are,” portfolio manager Anne Wickland at Easterly Investment Partners told the WSJ.
Higher stock prices also figure into executives’ annual bonuses.
Activists, politicians, and some analysts have criticized the buybacks, arguing that the cash would be better used if it were to be invested in the companies’ operations than in stock shares.
TRENDPOST: As we noted last spring in “Corporations To Return to Buying Their Own Stock” (18 May 2021), the trend of the Bigs getting bigger persists here as it does elsewhere.
When corporations buy back their own stock, the benefits flow to shareholders, market gamblers, and the executive suite.
The trend of the Bigs getting bigger and investing in expanding their revenue stream persists… rather than re-investing to build their business and for capital improvements. It’s about supply and demand—the more stocks they buy, the less supply. The less supply, the higher the price goes.