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Stock buybacks by companies/driver of stock markets (?), Aug. 2015
In accordance with the clarfication provided by Goldman Sachs in November 2014: "buybacks have been the largest source of overall US equity demand in recent years." (graph / source FT http://on.ft.com/1Ov0Ugf ). As indicated in the following chart companies are collecting and hoarding large amounts of (unused) cash on their balance sheets:
Furthermore Goldman states that the stealth LBO of the S&P 500 will not only continue in 2015 but accelerate, with another 2% of the entire market cap converted into debt, thanks to a whopping $450 billion in net corporate inflows, which works out to $35 billion more than the $415 billion in corporate inflows in 2014.
As noted in the article in "valuewalk", US multinationals steadily increasing returns to shareholders have in turn found stronger buyer interest. Both the S&P 500 buyback and S&P 500 dividend aristocrats indices have outperformed their namesake over the past 12 months, with the former outpacing the broader blue-chip index by nearly 650 basis points. (Status as per Nov. 2014, but definitely still valid as per Q2/2015)
In a note to investors in Q4/2014 Goldman Sachs analyst Amanda Sneider and colleagues informed that the buyback trends resumed in HY2/2014. Accordingly “...the slow pace of recovery and recurring threat of economic stagnation has biased managements in recent years toward returning cash to shareholders. Although they expect a gradual shift toward investing for growth via capital expenditures and M&A as confidence in the U.S. economy grows, the popularity of dividends and buyback should continue…”
In my personal view, this situation still remains the same, even more so (as per HY2/2015) considering the probable (short-term) weakening of the powerhouse China!
sources text paras and graphs: http://www.ft.com, http://www.zerohedge.com, http://www.valuewalk.com
