That would bring the 12-month total above $590 billion, an amount that’s higher than the record $589 billion in 2007.
“Corporate buybacks are the sole demand for corporate equities in this market,” David Kostin, the chief U.S. equity strategist at Goldman Sachs Group Inc., said in a Feb. 23 Bloomberg Television interview. “It’s been a very challenging market this year in terms of some of the macro rotations, concerns about China and oil, which have encouraged fund managers to reduce their exposure.”
Should the current pace of withdrawals from mutual funds and ETFs last through the rest of March, outflows would hit $60 billion. That implies a gap with corporate buybacks of $225 billion, the widest in data going back to 1998.
Kostin said companies tend to enact a blackout period and restrict share repurchases in the month following the end of a calendar quarter, and come back once they’ve reported results. In a market where everyone else is selling, the ebb and flow of corporate actions have amplified volatility. The S&P 500 slumped 11 percent in the first six weeks of the year before staging a rebound that has since trimmed the drop to about 1 percent. The benchmark gauge slipped 0.4 percent at 9:55 a.m. in New York.
That companies continue to boost buybacks amid turmoil is a sign of confidence and the stabilization in stocks is likely to draw investors back, according to Joseph Tanious, an investment strategist at Bessemer Trust in Los Angeles, which oversees more than $100 billion.
“I’m willing to bet that after the rally we’ve had in the last few weeks, fund flows will follow suit,” he said. “You might see investors begin chasing that type of performance.”
Credit Conditions
S&P 500 companies have churned out more than $2 trillion of repurchases since 2009, helping sustain a rally where share prices almost tripled. Bolstering the outlook for debt-financed buybacks, credit stress has eased since February, with the extra yield demanded on investment-trade bonds over Treasuries narrowing by 36 basis points.
The growth rate of buybacks is slowing as profits are poised for a fourth quarter of declines. After rising an average 37 percent in the previous five years, repurchases grew less than 4 percent in 2015. During the last two decades, there have been two times when earnings contractions lasted longer than now. Both led companies to slash buybacks, with the peak-to-trough drop reaching an average 62 percent.
While companies haven’t started tightening the purse strings yet, there are signs their ability to keep the market aloft is diminishing. Since reaching an all-time high in May, the S&P 500 has lost 5.1 percent and suffered two declines exceeding 10 percent.