A wave of stock buybacks is sweeping corporate America, shattering records and reflecting a bullish outlook on the US economy. In the past 13 weeks, companies have announced plans to repurchase over $383 billion in shares. This stunning figure marks a 30% year-over-year increase and surpasses buyback levels seen since mid-2018, according to Deutsche Bank research. Apple’s historic $110 billion plan leads the charge.
Analysts at Deutsche Bank note that the buyback frenzy isn’t limited to tech giants like Apple and Alphabet (which recently unveiled a $70 billion repurchase program). Of the $262 billion in buybacks disclosed during first-quarter earnings, a substantial $82 billion comes from companies outside the big tech sector. This trend signals a potential broadening of the stock market rally, a positive development for investors.
“Historically, buybacks have had a significant impact on medium-term equity performance,” explained Deutsche Bank chief equity strategist Binky Chadha in a recent interview.
Chadha highlights the inherent message that buybacks convey: they indicate a company’s confidence in the broader economic environment. Typically, buybacks increase alongside rising earnings since stronger earnings translate to greater cash flow. Companies can choose to allocate excess cash towards dividends, reinvestments into the business, or stock repurchases, which return capital to shareholders.
Interestingly, this pattern broke down slightly in 2023. Despite earnings growth, buybacks remained subdued, possibly due to widespread recession fears. “Companies tend to hoard cash when the prevailing outlook predicts a severe slowdown or recession,” Chadha observes.
The recent surge in buybacks suggests that this pessimistic sentiment is shifting. Corporate actions align with the growing optimism among economists and macro strategists regarding US economic prospects.
Elyse Ausenbaugh, global investment strategist at JPMorgan Private Bank, sees the buyback uptick as a reassuring sign for investors. She believes that companies repurchasing their own shares create a support system for the market, even in the absence of strong buying activity from individual investors.
Furthermore, Ausenbaugh views buybacks within the broader context revealed by first-quarter earnings reports: companies are experiencing higher cash flows and strategically deploying those resources to benefit shareholders. This includes increased capital expenditures by tech giants, which she connects to the ongoing momentum in sectors like AI.
