Jump in Buybacks Bolsters Trump Rally as Goldman Desk Sees Surgeby
Goldman, Bank of America data show surge since election
Executed and authorized repurchase plans remain down on year
The Trump rally is getting a boost from an old ally of the bull market that’s otherwise played a diminished role this year.
Corporate buybacks, key to the rally in equities since 2009, have faded in 2016 as shareholder-friendly activity from repurchases to dividend payouts stalled near records. They may be heating up again. Buybacks last week rose 70 percent from the same time a year ago, and 64 percent higher than Dec. 2015, according to a note from Goldman Sachs Group Inc.’s trading desk.
Data from Bank of America Corp. show a similar trend, with repurchases on the upswing since the U.S. election. While buybacks were happening 18 percent below the weekly average at the end of October, they’re now 10 percent above the average.
“The incoming presidential administration’s proposed policies and the uncertainty around them are a net positive for returning cash to shareholders,” Bank of America’s analysts wrote Wednesday. “Corporate tax rate decreases and potential repatriation tax holidays may generate more corporate net income that can be returned to shareholders.”
The jump since the election marks a shift in how companies are spending cash. So far in 2016 they’ve bought about 33 percent fewer of their own shares, and authorized about $661 billion in new programs, compared with $835 by this point last year, the Goldman data show.
Purchases since the election parallel the market’s performance. Financial companies have accounted for 29 percent of repurchases, the biggest chunk among any group in the S&P 500 Index, according to Bank of America.