Blackout Of Buybacks Threatens Bullish Run？
"Blackout Of Buybacks Threatens Bullish Run." Written by Lance Roberts, the article discusses the impact of stock buyback suspensions (blackout periods) on market liquidity and the potential threat to the bullish run this year.
Yes, buybacks are that important.
“The chart below via Pavilion Global Markets shows the impact stock buybacks have had on the market over the last decade. The decomposition of returns for the S&P 500 breaks down as follows:“
6.1% from multiple expansions (21% at Peak),
57.3% from earnings (31.4% at Peak),
9.1% from dividends (7.1% at Peak), and
27% from share buybacks (40.5% at Peak)
Buyback contribution
The main points of the article include:
The Importance of Stock Buybacks: The article points out that stock buybacks are a key source of market liquidity and are crucial for supporting asset prices. Over the past decade, 27% of the S&P 500's returns came from stock buybacks, which accounted for up to 40.5% during market peaks.
Correlation Between Buybacks and Market Performance: The article presents data showing a high correlation between stock buyback activity and market performance. Increases in buybacks often coincide with market rebounds, especially at market lows.
Impact of Buyback Suspension Period: The article mentions that with the arrival of the second half of March, the buyback suspension period may reduce one of the liquidity sources supporting the bullish run this year. This could pose a short-term risk to the market.
Investor Sentiment: Currently, investors are very optimistic about the investment environment. However, historically, when retail investor sentiment is extremely bullish and volatility is low, it usually corresponds to short-term market tops.
Support from the Federal Reserve (The Fed): Although the suspension of buybacks may lead to a short-term market correction, the Federal Reserve may provide additional support in the long term. If the Fed lowers interest rates, it will reduce corporate borrowing costs, which has historically been beneficial for stock buybacks.
Conclusion: The article concludes that while the market is currently very bullish, healthy bull markets require occasional corrections to avoid overexpansion and more destructive outcomes. The suspension of buybacks may lead to a price reversal, but these buyback activities will soon resume, and with an anticipated $1 trillion in purchases, there is a lot of support for asset prices this year.
The article also mentions Warren Buffett's views on stock buybacks, emphasizing that if buybacks are made at value-accretive prices, they are beneficial for shareholders; however, if a company overpays for buybacks, continuing shareholders suffer.
This article provides an in-depth analysis of the current market conditions and discusses the role of stock buybacks in market dynamics, as well as how investors should view these phenomena.
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