As we approach the end of the year, U.S. stocks have been on a record-breaking run. This has coincided with plans by company leaders to buy back their own shares as a way to thank shareholders and themselves.
The S&P 500 index SPX +0.10% has gone above 6,000, thanks to strong buying interest. The stock market index is on track for a nearly 30% year-to-date gain and a 58.5% two-year gain. According to Dow Jones Market Data, that would be its biggest back-to-back gain since 1998.
Matt Stucky, chief portfolio manager at Northwestern Mutual, said, “The raw fuel for buybacks is there.” He pointed to strong company earnings, even though the Federal Reserve has kept interest rates high.
Stucky said, “Consumer and business confidence has gone up in the past few months, which is a must for increasing buyback plans.”
Winston Chi, an analyst at EPFR, says that corporate leaders have reacted by announcing plans for more share buybacks. This has brought the total amount of shares bought back each year to a record high of $1.248 trillion.
This week, AT&T Inc. T +1.31% announced a buyback plan worth about $20 billion and a reward program worth about the same amount over the next three years. These moves helped set a new record for the year.
People may say that leaders might be overpaying for their stock when they buy it back at record prices, or that they could focus on growth by investing in their own businesses or merging or buying other companies.
Stucky said that famous investor Warren Buffett has been very careful lately when buying back shares at Berkshire Hathaway (BRK).A +0.56% BRK.B +0.47% even though most investors still see them as good, even with the 1% buyback tax in place.
On Thursday, the DJIA -0.25%, the COMP +0.23%, and the S&P 500 were all over the place. This was before Friday’s monthly jobs report. But they have been hitting new highs this week. Recent gains are due to strong corporate earnings and optimism about Trump’s plans for a second term that will cut taxes and regulations while pushing “America first” policies.
The Trump transition team didn’t answer right away when asked for a comment on this story.
