Corporate Buyback Surge Fuels Market Rally

Corporate Buyback Surge Fuels Market Rally 

Two weeks ago, there was a significant sell-off in the market that threatened to push the S&P below 5,000 and trigger more selling. However, it was noted that the buyback blackout period ended on April 26, leading to increased corporate buying and supporting the market. Since then, the market has seen an upward trend, with the S&P around 200 points higher.

Now, Goldman trader John Flood reports that their buyback desk is active again, especially since 80% of SPX earnings have been released, allowing for more buybacks until June 14, 2024. Flood states that currently, about 86% of companies are within this buyback window, expected to rise to 92% by the end of the week. This positive sentiment is supported by strong earnings growth and significant buyback announcements, such as Apple's $110 billion buyback plan.

Vani Ranganath from Goldman adds that desk volumes last week were higher compared to previous years, particularly in Financials, Industrials, and Consumer Discretionary sectors. There's an increase in open market discretionary orders as companies enter their buyback window after releasing earnings. The table shows numerous buyback programs authorized last week totaling $144.5 billion.

Contrary to common belief that buybacks are blind to prices, Goldman's trading volumes actually increase after market drops, indicating buybacks act as a stabilizing force. With corporations holding vast amounts of cash, the risk of a sustained crash is minimal. Even without a crash, buybacks are expected to boost stocks to new highs due to the massive amount of corporate stock purchases authorized.

Goldman Sachs Research estimates nearly $934 billion in corporate buybacks for 2024, with over $550 billion already authorized this year, making it the third-best year on record. Last week, Goldman's corporate execution desk saw a 40% increase compared to the previous year. There's anticipation that corporates might increase authorizations ahead of upcoming events like elections.

Between May and June, approximately 17.3% of annual executions are expected, translating to around $162 billion. This would create significant demand for stocks, particularly benefiting the largest market capitalization companies. The conclusion is that record buyback authorizations are likely to continue, with considerable purchasing power available.