Since the start of the bull market in 2009, U.S. companies have been buying their own stock. Stock buybacks peaked during the first three quarters of 2016 and have dropped off sharply since then, reports Financial Times citing a report from Goldman Sachs.
Companies participate in stock buyback (a.k.a. share repurchase) programs to improve shareholder value. For example, if company management believes a company’s shares are undervalued, it can buy shares on the stock market or offer shareholders a fixed price to purchase their shares. This reduces the number of shares in the marketplace and increases earnings per share, which has the potential to boost the company’s stock price.
The slowdown in stock buybacks hasn’t hurt stock markets. Financial Times reported:
“The slowing pace of companies buying back their own shares has certainly not halted Wall Street’s stellar run so far this year. While there is a reduced tail wind of buybacks helping boost earnings per share via a lower share count, U.S. companies have reported robust year-on-year sales and earnings growth for the recent quarter. That has helped offset the decline in buyback activity, but some warn that the clock is ticking for Wall Street bulls.”
There was no sign of a slowdown in the bull market last week, though. The Department of Labor reported the United States added more new jobs than anyone had expected during July, and the unemployment rate fell to 4.3 percent – the same level as May 2017, which was the lowest in 16 years, according to Barron’s.
Jobs growth was music to many investors’ ears.
Financial Times reported, “U.S. equity indices hovered near record highs – with the Dow Jones Industrial Average touching an all-time peak of 22,089.05 in early trade – with financials bolstered by the rise in yields. European [markets] ended the week on a strong note, helped by a sharp retreat for the euro against the dollar.”
https://www.ft.com/content/c4de73e2-17a1-11e7-9c35-0dd2cb31823a (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-07-17_FinancialTimes-Five_Markets_Charts_that_Matter_for_Investors-Footnote_1.pdf)
http://www.barrons.com/articles/july-jobs-report-called-near-perfect-as-payrolls-and-wages-rise-1501850651 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-07-17_Barrons-July_Jobs_Report_Called_Near_Perfect_as_Payrolls_and_Wages_Rise-Footnote_4.pdf)
https://www.ft.com/content/b4257d20-78b8-11e7-a3e8-60495fe6ca71 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-07-17_FinancialTimes-Dollar_and_Treasury_Yields_Lifted_by_US_Jobs_Data-Footnote_5.pdf)