Share buyback plans have boomed and should help the US stock market continue to soar higher, research firm says

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  • 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.

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Stocks now represent a record-high percentage of financial assets among US households, reports say

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  • Stocks now represent 41% of US households’ financial assets, according to data from JPMorgan and the Federal Reserve.
  • Robinhood tripled its revenue from payment for order flow in the first quarter amid a rise in retail traders.
  • Warren Buffett warns investors are “just as sure” of themselves as they were in 1989 before a mini-crash.
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Americans are now holding a higher percentage of their net worth in stocks than ever before, the Wall Street Journal reported on Monday based on data from JPMorgan and the Federal Reserve.

US households increased their equity holdings to a record 41% of their total financial assets in April.

Nikolaos Panigirtzoglou, an analyst at JPMorgan, released the findings from data going back to 1952 that includes 401(k) retirement accounts. The analyst said appreciating share prices coupled with increased buying were the main factors for the elevated allocations.

The news comes just two weeks after FINRA announced margin debt – the amount of money investors borrow from their brokers – hit another record high in March, topping $822 billion.

The rise in interest in equity markets and the use of debt to invest in them comes amid a boom for retail traders.

New apps like Robinhood and Webull have taken the market by storm, adding millions of new investors and traders over the past few years.

Robinhood has grown so much it was able to more than triple the revenue it earns from payment for order flow in the first quarter of 2021.

The rise in revenue from active trading came after Robinhood added some 3 million new members in the first quarter of 2020 alone during the height of the pandemic, per Bloomberg.

A new study from the University of Western Australia found that trading activity among retail investors spiked during the pandemic as investors had more time and money to invest in online trading.

Robinhood and other trading apps have repeatedly graced the top of Apple and Google’s app stores amidst the meteoric rise in retail trading.

And while many market commentators are cheering the inclusive move, some have issued warnings.

Warren Buffett warned about the self-confident nature of Wall Street and the new breed of retail investors in Berkshire Hathaway’s annual shareholder meeting on Saturday.

“We were just as sure of ourselves, and Wall Street was, in 1989 as we are today. But the world can change in very, very dramatic ways,” the ‘oracle of Omaha’ said.

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