Top Wall Street firms are getting increasingly worried corporate stock buybacks are drying up just when the market needs them most (SPY) | Business Insider

Goldman Sachs

  • Corporate share buyback programs are declining at a rapid rate as companies look to build up cash and strengthen their balance sheets amid the coronavirus pandemic.
  • Analyst notes from Bank of America, Goldman Sachs, and JPMorgan point to a significant drop in estimated buybacks for 2020, just when the market needs them most. 
  • Since 2009, the only net buyer of stocks has been corporations, one analyst noted.
  • Visit Business Insider’s homepage for more stories.

Corporate stock buyback programs are drying up just when the market needs them most.

Since 2009, corporations have been the only net buyer of stocks, repurchasing more than $4 trillion worth of shares, according to a note from Canaccord Genuity’s Tony Dwyer published last month.

Those corporate buyback flows have undoubtedly helped equity prices rise over the past decade, underscoring their importance in the market as the S&P 500 indextrades down more than 11% year-to-date.

Now, as companies scramble to raise cash and strengthen their balance sheets amid the economic uncertainty due to the coronavirus pandemic, buyback programs are evaporating.

Announced buybacks for S&P 500 companies year-to-date are tracking more than 50% below its prior year levels at just under $100 billion, according to a JPMorgan analyst note published on May 4.

And worse than the announced buyback figures are the actual buyback numbers.

In Bank of America note published Wednesday morning, the bank said:

“Buybacks remained extremely anemic, with QTD buybacks tracking just over $1 billion – on pace for a record low ~$2 billion quarter in our data history. YTD, cumulative buybacks are tracking 35% below 2019 levels at this time …”

The bank tracks its own clients’ buyback activity, which has tracked relatively well to overall stock buyback data. Its clients’ stock buyback activity is down more than 90% according to this chart.

Bank of America

Driving the drop in buybacks is this: 164 S&P 500 companies have either suspended their buyback programs or cut their dividends, according to a Goldman Sachs note published on Tuesday.

Don’t expect stock buyback programs to come back anytime soon. Goldman Sachs estimated that first quarter 2021 stock buybacks will still be down 40%.

Source: Top Wall Street firms are getting increasingly worried corporate stock buybacks are drying up just when the market needs them most (SPY)

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