Corporate buybacks to provide US market support
In the coming weeks investors can expect support from corporations as they increase their stock purchases.
On Wednesday there was a huge equities selloff, fueled by concerns over the global economy, the timing of the Fed’s next policy move, and Ebola headlines worrying the market.
In addition, many companies were not in the corporate repurchase market as they entered the earnings season.
In a note earlier this week, Goldman Sachs wrote:
“We are now in a blackout period so companies have been precluded from conducting tactical buyback activity that has supported the equity market during selloffs in the recent past,”
According to data gathered by Thomson Reuters, not many American companies carried out buybacks in October, with only $1.7 billion in stock repurchases announced or completed so far this month, compared with about $250 billion during the first nine months of the year.
However, with the markets hitting (what is thought to be) rock bottom many companies may see it as an opportunity to buyback stock at very cheap prices.
Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh, said:
“If you truly believe your prospects are bright and you’d like to return capital to long term holders of your stock, it is an excellent time to buy back shares. It would seem stupid to let this opportunity pass.”
The market is about to enter one of the busiest periods of earnings announcements, with results due from 128 S&P 500 companies.
Art Hogan,chief market strategist at Wunderlich Securities in New York, said:
“Next week is one of the busiest we have, so that unlocks alot of buyback programs after that’s over,”
In addition, earnings for the S&P 500 are now forecast to have increased by 6.9 percent this quarter, compared to a previous estimate of 6.5 percent.