Companies worldwide are ramping up share buybacks at an accelerated pace in the early months of 2024, bolstered by stronger-than-expected earnings on both sides of the Atlantic. This resurgence in buyback activity is emerging as a vital support pillar for global stock markets already soaring to record highs.
After a cautious approach in 2023 due to elevated borrowing costs, corporations are now aggressively announcing share repurchases, signaling a shift in sentiment as profit growth improves and expectations rise for interest rate cuts by the Federal Reserve and the European Central Bank. The anticipated reduction in borrowing costs is expected to provide companies with additional cash and flexibility to bolster their share prices.
In the first seven days of February alone, US companies have announced a staggering $105 billion in planned share repurchases, surpassing the total for the entire month of January. This robust start to the month marks the strongest February kickoff for announced buybacks on record, according to data from research firm Birinyi Associates Inc. Notably, the S&P 500 Index has already notched nine record highs this year, underscoring the positive sentiment among investors.
Matt Maley, chief market strategist at Miller Tabak + Co., views the surge in buyback announcements as a reflection of management’s growing confidence in the economic outlook. Maley sees this trend as a constructive indicator, suggesting that companies believe there is further upside potential in the stock market.
Despite the anticipated increase in buybacks, preliminary data from S&P Dow Jones Indices indicates that S&P 500 firms are expected to repurchase $885 billion in stock this year, a 10% rise from 2023 but down 4% from the record pace set in 2022. Notable buyback announcements include Meta Platforms Inc.’s plan to repurchase an additional $50 billion in stock, Carlyle Group Inc.’s announcement of a $1.4 billion buyback plan, and Alibaba Group Holding Ltd.’s decision to boost its repurchase program by $25 billion.
While buybacks can boost share performance, Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, notes that their impact may be somewhat tempered due to high valuations, resulting in companies repurchasing fewer shares. Moreover, the magnitude of buyback expenditures relative to companies’ earnings and market values may not be substantial.
In Europe, buyback announcements have also seen an uptick, particularly in the financials and energy sectors. Banks such as Unicredit SpA, Intesa Sanpaolo SpA, Deutsche Bank AG, and Banco Bilbao Vizcaya Argentaria SA have initiated share repurchase programs, contributing to stock price appreciation.
According to Marshall Front, chief investment officer at Front Barnett Associates, the surge in planned buybacks reflects corporate executives’ confidence in the global economy and markets. As economic conditions continue to improve and inflationary pressures subside, companies are demonstrating their optimism by announcing share repurchases, signaling their expectation of a favorable economic environment ahead.
