Fewer U.S. Shares Available Fuels Bull Market: Chart of the DayDavid Wilson
Repurchases are magnifying gains in U.S. stocks and are poised to lift prices further, according to Pavilion Global Markets Ltd. strategists.
As the CHART OF THE DAY shows, the Wilshire 5000 Total Market Index has risen more than the market value of all U.S. companies since the current bull market started in March 2009, according to data compiled by Bloomberg. Through last week, the gap was about 13 percentage points.
“The difference comes from a reduction in the number of shares,” Pierre Lapointe, head of global strategy and research at the Montreal-based firm, and two colleagues wrote yesterday in a report. “The resulting de-equitization is giving a boost to this stock-market rally.”
S&P 500 calculations are based on 2.3 percent fewer shares than in July 2011, when the total reached its high for the bull market, the strategists estimated. A drop in stock outstanding accounted for 25 percent of the past year’s earnings-per-share growth for companies in the index, they added.
Apple Inc., the world’s largest company by market value, increased its stock-buyback program last month by $50 billion. That’s enough to pay for about 12 percent of the Cupertino, California-based company’s shares at their closing price yesterday. The program will run through 2015.
“De-equitization is a global phenomenon,” Lapointe and his colleagues added. In most developed markets, FTSE stock indexes rose faster than total market value during the past year, according to their report. This was also the case in Brazil, Mexico and South Korea, three emerging markets.