Companies in the S&P 500 bought back $234.5 billion worth of shares during the third quarter of 2021, more than the previous record of $223 billion the last quarter of 2018, reports an article in The Wall Street Journal. And analysts project more buybacks in the 4th quarter, perhaps as much as $236 billion. Microsoft, Hertz, and Dell Technologies are among the high-profile companies who have announced plans to repurchase stock.
But buybacks are only a part of the stock market’s rally: asset prices continue to benefit from market-friendly policies put in place to foster economic recovery from the pandemic. Corporate earnings, which are routinely underestimated, are also expected to expand 45% in 2021 for S&P 500 companies, the article notes.
Stock repurchases can support a company by lowering its share count and therefore raising per-share profit. And when investors see executives buying shares in their own company, that instills confidence about the company’s financial future.
There’s criticism of stock buybacks from some politicians, who believe that companies should use the cash to invest in their business instead of propping up share prices. The Build Back Better Bill that passed in the House would institute a 1% tax on the net value of a company’s stock buybacks. And while the bill does not currently seem to have a path to passing in the Senate, there hasn’t been a lot of corporate opposition to that item in the bill. Strategists and investors alike believe that it wouldn’t have much of an impact, with analysts at Bank of America Global Research projecting that the tax would result in only a 0.3% reduction to S&P 500 per-share earnings, the article reports.
Buybacks rebounded this year after they plunged from $199 billion to $89 billion in the 1st and 2nd quarters of 2020, when companies moved to conserve their cash after the start of the pandemic.