Companies on both sides of the Atlantic are announcing share buybacks at a breakneck pace heading into 2024 as profits beat expectations, with the potential to support global stock markets already trading at record highs. It becomes an important pillar.
Faced with the highest borrowing costs in decades, companies have become stingy with share buybacks in 2023, but that is changing with buybacks expected to increase this year. Earnings growth is improving and investors expect the U.S. Federal Reserve and European Central Bank to start cutting interest rates later this year. Lower borrowing costs should give companies room to take on more cash and debt to boost stock prices.
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U.S. companies announced $105 billion in stock buyback plans in the first seven days of February, more than the entire month of January combined. This is the best start ever for a February in announced share buybacks and the second-best start in a single year since 2023, according to data from research firm Billingyi Associates. Perhaps unsurprisingly, the S&P 500 Index has set nine records so far this year.
“These numbers show that management is growing more confident about the direction of the economy,” said Matt Maley, chief market strategist at Miller Tabak & Company. It should be seen as a positive indicator.” Although stocks are not as cheap as they were last year, he believes there is still room for upside for companies that have announced share buybacks. ”
S&P 500 companies are expected to repurchase $885 billion in stock this year, up 10% from 2023 but at a record pace in 2022, according to preliminary data from S&P Dow Jones Indices. It will decrease by 4% from
Last week, Meta Platforms announced plans to buy back an additional $50 billion in stock, the largest authorization in U.S. history, according to data from Birinyi. This was followed on Wednesday by Carlyle Group, which announced plans to buy back up to $1.4 billion in stock, and Alibaba Group Holding, which said it would increase its share buyback program by $25 billion.
“While the market is at record highs, many companies' stock prices continue to decline, and as a result, share buybacks are a way for these companies to value their stock,” said Jeff Rubin, a director at Billini. This shows that we are thinking about this.” the study.
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said buybacks can help share performance, but higher valuations mean companies may buy fewer shares. He said that the impact could be a little weaker because it means a higher rate of return. What's more, he said, the expenses aren't necessarily that large when compared to a company's revenue or market value.
Share buyback announcements are also on the rise in Europe, particularly in the financial and energy sectors, which generated the most returns for shareholders last year. Share buyback programs at UniCredit, Intesa Sanpaolo, Deutsche Bank and Banco Bilbao Vizcaya Argentaria are boosting share prices as banks continue to benefit from higher borrowing costs.
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Goldman Sachs Group Inc.'s basket of high-yield stocks has risen twice as much over the past 12 months as the Stoxx Europe 600 index's return of 5.9%, while the Solactive Europe share buyback index has also risen 10% over the same period. .
Marshall Front, chief investment officer at Front-Barnett Associates, said the strong pipeline of planned share buybacks shows the confidence of corporate executives, all of which bode well for the global economy and markets. Stated.
“The economy will continue to improve, inflationary pressures will continue to ease, interest rates will continue to fall, and all of the above will give corporate executives the confidence they need to announce stock buybacks,” Front said, referring to the United States on the call. I am giving,” he said. “This means businesses are not expecting a major downturn.”
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