“The first half of 2014 has been the best start to the year ($338billion) since 2007 ($361 billion), the current record year for buyback authorizations and executions,” writes Birinyi analyst Rob Leiphart. “And since the bear market ended on March 9, 2009, the current quarter ($157 billion) is the third best (out of 22 quarters) during the current bull market.”
This matters because with fewer shares circulating after a buyback, earnings per share – a key metric in valuing stocks – are boosted even if net income declines. According to a recent study by Barclays, share buybacks are now responsible for about 2 percent of total earnings for the S&P 500. What’s more, companies that have the highest share repurchases have outperformed the rest of the market since mid-2008.
Gina Sanchez, founder of Chantico Global, pins share buybacks squarely on the shoulders of the Federal Reserve’s quantitative easing program. She sees the S&P 500’s recent record highs as a byproduct of buybacks, not high levels of revenues.
“It is shocking that this continues,” said Sanchez about buybacks. “What we have seen is continued evidence that all of this monetary expansion has found its way into earnings – [into] everything except for real demand and sales.”
Labeling earnings over the past five or six years as “just OK,” Sanchez said net income has only recently started to pick up. However, she believes investors have been buying into momentum over the past few years.
This matters because with fewer shares circulating after a buyback, earnings per share – a key metric in valuing stocks – are boosted even if net income declines. According to a recent study by Barclays, share buybacks are now responsible for about 2 percent of total earnings for the S&P 500. What’s more, companies that have the highest share repurchases have outperformed the rest of the market since mid-2008.
Gina Sanchez, founder of Chantico Global, pins share buybacks squarely on the shoulders of the Federal Reserve’s quantitative easing program. She sees the S&P 500’s recent record highs as a byproduct of buybacks, not high levels of revenues.
“It is shocking that this continues,” said Sanchez about buybacks. “What we have seen is continued evidence that all of this monetary expansion has found its way into earnings – [into] everything except for real demand and sales.”
Labeling earnings over the past five or six years as “just OK,” Sanchez said net income has only recently started to pick up. However, she believes investors have been buying into momentum over the past few years.
Stock buybacks not always a good idea
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