Stock buybacks appear to be an under-the-radar driver of the recent market rebound. The act of a company repurchasing its own stock can be seen as a sign of financial health and confidence from executives that the share price will rise. Famous investor Warren Buffett is one of the most well-known supporters of buybacks. It has been an especially popular move within corporate America this year, with Palo Alto Networks and H & R Block among the latest companies to announce plans for buying back more of their stock. To evaluate the relative volume of corporate buybacks, Bank of America analyzes year-to-date share repurchases. The firm then finds what that amount is as a percentage of the S & P 500 ‘s market cap at the beginning of each calendar year. Bank of America compared the start of 2024 through the end of last week with the same time frame in prior years. It found the stock repurchase percentage appears to be at a high going back to at least 2010. What’s more, Bank of America said buybacks are tracking above seasonal levels for the 23rd straight week. Communication services stocks within the S & P 500 have completed the highest share of buybacks to market cap, the firm found. Corporate buybacks can drive up inflow volumes for an equity. Due to that, some have questioned if companies executing on their plans to purchase their own shares has accounted for any of the current market rally that came after the early August rout. “It’s difficult to determine just how much of an impact corporate buybacks played in the rebound that we find ourselves in today,” Strategas managing director Ryan Grabinski told clients last week. “But it can’t be ignored as an additional tailwind to risk moving forward.”
The hidden force driving the stock market comeback
Aug 20, 2024
