I’m currently sitting on the Gulf of Mexico. I have one week left before I can return home to see my daughter and wife. It’s been a very interesting time. I’ve been doing a lot of research to keep my mind focused, but it’s a challenge as my three-year-old wards off COVID. I’ve done a lot more reading in the last few days. And that’s saying something. The stack of papers that I read at night has doubled. And there’s one number that I want to share with you. It’s $208 billion. That’s how much money companies spent buying back their own stock in April. Just April! Over the first four months of the year, buybacks totaled more than $400 billion. State Street predicts that buybacks will surpass $800 billion this year. What does this mean for the market?
The Sugar High
There are many reasons to be worried about the U.S. economy. There is the threat of rising prices. We have a return of geopolitical tensions emerging. We have a trucking shortage. People are turning down jobs left and right because the government is paying them NOT to work.
But corporate America is still very bullish, and they’re putting their money to work. Goldman Sachs and State Street project at least a 30% jump in buybacks this year.
Why do buybacks matter?
Firms are sitting on an incredible amount of cash. Apple just announced it had nearly $200 billion in cash and cash equivalents. The money has to go somewhere. And there’s no company out there that the firm really wants to buy.
So, they’re pumping another $90 billion to purchase stock and effectively retire it from the rotation. When firms buy back the stock, they increase the value of each share that is outstanding in the market.
Apple’s not the only firm. JPMorgan Chase announced a $30 billion buyback program.
As we continue through earnings season (and look toward the reports during the third quarter), I expect this trend to heat up.
Look for more and more announcements that suggest companies will pump cash back to their shareholders.
Market Conditions with Dr. Bauer
Good afternoon. Looking at the current market conditions, we see that market momentum remains positive for the S&P 500. We use the 5-13 exponential moving average (EMA) as a key indicator to reflect broader momentum. As you see below, the red line (the 5-day EMA) is above the blue line (13-day). This suggests a healthy situation where institutional capital continues to pour into the market. We also know that the Federal Reserve will continue to engage in open market operations and support the U.S. economy. Add on the trend that Garrett just discussed, and we see strength in the equity markets in the near term.
If conditions change, my readers will be the first to know.