- Corporate buyback announcements ‘exploded’ as trading in April wrapped up and that helped push stocks higher, said Vanda Research.
- A jump in buybacks should help soften the blow in the US equity market in the event of a drawdown.
- “As net equity supply shrinks every dollar invested in the US market will have a larger marginal impact,” said Vanda.
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There’s been a surge in planned corporate share buybacks and that should help support US stocks as they trade around record highs, according to independent equity research firm Vanda.
Share buyback announcements “exploded” last week, led by Apple saying its board has authorized an increase of $90 billion in its existing share repurchase program and with Google’s parent company Alphabet saying its board greenlighted the repurchase of up to an additional $50 billion of its own stock.
The announcements contributed to the advance in US stocks as investors wrapped up trading in April that left the S&P 500 and the Nasdaq Composite each gaining at least 5% for the month and the indexes not far off from record highs.
The planned buybacks should also help the stock market in two ways, said Vanda Research, whose VandaTracks arm tallies retail investing activity in 9,000 individual stocks and ETFs in the US.
“In the event of a drawdown, corporate desks will buy shares at discounted valuations, cushioning the blow from institutional selling,” wrote Vanda Research senior strategist Ben Onatibia and analyst Giacomo Pierantoni in a note published Monday.
Secondly, they say net equity supply will be negative through 2021, even if the recent rise in IPOs and share offerings is sustained. Companies in the US have been issuing new shares at an annualized pace of US$660 billion through April, while S&P companies have announced $860 billion worth of buybacks annualized.
“As net equity supply shrinks every dollar invested in the US market will have a larger marginal impact and could perpetuate the outperformance of US equities,” versus the equity markets worldwide, Vanda said.
Bank of America recently said Wall Street may be on track for $900 billion of gross S&P 500 buybacks in 2021.