Buybacks Not Likely to Slow Down

Market volatility is not likely to slow down the pace of share buybacks by U.S. companies, according to a recent article in The Wall Street Journal.

According to S&P Dow Jones Indices, the article reports, firms repurchased $188 billion worth of their own stock in the first quarter of the year, “on pace to be the second-highest amount on record based on data going back to 1998.” And while second quarter data is not yet available, it adds, “companies ramped up buying during the two previous market pullbacks.”

The article suggests that buybacks, which help companies boost their earnings-per-share, are continuing despite U.S.-China trade tensions and the subsequent uptick in global growth concerns—which resulted in a weak start for the S&P 500 in May.

“When markets decline sharply,” it says, “it presents a dilemma: On one hand, if things get bad, companies may want more cash on hand. On the other, a downtrend in markets generally means a company’s stock gets cheaper, so its dollar goes farther in buying back shares.”

According to Ed Clissold, chief U.S. strategist at Ned Davis Research Group, firms are not interpreting current market volatility as indicative of a broader economic concern: “Companies will do a lot to avoid cutting or suspending a dividend, so if prospects deteriorate, buybacks are the first thing they take away.”

The article reports that some analysts see share buybacks as a driver for the late stages of the bull market, “and companies repurchasing shares during a downturn could help buoy markets.”