U.S. companies scramble to buy back stocks. What does this mean for the stock market?

Although U.S. stocks continue to hit new highs, it does not affect the enthusiasm of U.S. companies to buy back stocks. Generally speaking, stock repurchase is a good sign for stock prices, because repurchase is the most direct way to boost stock prices.

Scott Ladner, chief investment officer of Horizon Investments LLC in the United States, predicts that stock repurchases in the US stock market will hit a record high this year.

According to statistics from foreign media, in the second quarter of 2021, companies in the S&P 500 index have invested a total of US$171.5 billion in stock repurchases. Although the repurchase intensity is still lower than the level before the epidemic, compared with the fourth quarter of 2020, it has increased significantly by US$51.2 billion.

During the peak of the epidemic at the beginning of last year, U.S. listed companies once greatly reduced their repurchase efforts. However, since the second quarter of 2020, stock repurchases in the U.S. stock market have continued to rise, and the company’s increasing cash reserves have forced them to use stock repurchases more quickly. purchase.

Bank stock repurchase is a good signal

So far, technology companies have been the sector with the largest repurchase volume; in the first three months of this year, the information technology department’s repurchase volume accounted for nearly one-third of the total.

Apple announced a $90 billion stock repurchase program in the second quarter of this year, up from $50 billion last year and $75 billion in 2019; and raised its dividend by 7% to $0.22 per share.

After passing the stress test, a number of bank stocks have also announced repurchase plans. For example, Morgan Stanley announced at the end of June that it would increase dividends and spend US$12 billion to repurchase stocks in the next 12 months; Wells Fargo also announced recently. A similar repurchase program was established.

For stock market bulls, bank share repurchases will be a bullish signal for stocks.

Although the S&P 500 index continues to set new highs, the overall performance is in a strong but not too aggressive state. Compared with the 19 times average price-earnings ratio of the past ten years, the price-earnings ratio of the S&P 500 index is close to 31 times.

US Seaport Research Partners analyst Jim Mitchell predicts that in the next 12 months, the total amount of bank stock repurchases may account for 7.6% of its current market value.

American Roosevelt Investment Group senior portfolio manager Jason Benowitz said that although the economy continues to rebound and buybacks may increase, companies may choose to spend more cash on capital expenditures such as technology and factories. He is not worried that the reduction in repurchase will put pressure on the overall market.

Benowitz also pointed out that the US economy is in a rebound phase, and the stock market will also benefit. Even if someone withdraws from the repurchase, he believes that other buyers will join. At present, banks still need to attract more funds, and interest rates are relatively low.

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