"US Stocks' Largest Demand Comes from Corporations" Share Buyback Announcements Surpass $1 Trillion This Year

Annual Share Buyback Plans Announced by US Companies
[Image Source= Bloomberg]

[Asia Economy Reporter Park Byung-hee] Bloomberg reported on the 16th (local time) that the total amount of share buybacks announced by U.S. companies this year has exceeded $1 trillion.

According to financial information firm Verini Associates, the total amount of share buybacks announced by U.S. companies this year was $1.06 trillion. This is three times higher than the same period last year. It is highly likely to surpass the all-time high of $1.11 trillion recorded in 2018.

The large cash reserves held by companies are the background for the massive share buybacks.

Since the 2008 global financial crisis, corporate cash holdings have steadily increased. Following the global financial crisis, ongoing global economic uncertainty led companies to hesitate in making investments, causing profits to accumulate internally. During Donald Trump's presidency, companies also received tax benefits worth hundreds of billions of dollars.

Share buybacks are long-term purchases carried out over several years and are not always fully executed as initially planned. Moreover, in cases like big tech companies that grant many stock options, the effect of share buybacks can be diluted.

However, since the share buyback plans themselves are so large, there is a forecast that they will have a definite effect on boosting stock prices. It is also analyzed that they will serve as a safety net limiting the decline in stock markets in case of drops caused by the Federal Reserve's monetary policy tightening.

David Kostin, investment strategist at Goldman Sachs, predicted, "As in the past decade, companies will be the strongest buyers of U.S. stocks next year." Kostin expects corporate net demand for stocks next year to be $360 billion, significantly exceeding household net demand of $200 billion.

According to Goldman Sachs' data, companies that conducted large-scale share buybacks saw their stock prices rise by 33% this year, outperforming the S&P 500 index's 25% increase. In contrast, companies focused on capital investment had stock price increases similar to the S&P 500's rise.

The U.S. government is considering imposing taxes on corporate share buybacks. Kostin expects that the currently proposed 1% tax will not significantly affect corporate demand for share buybacks.

This content was produced with the assistance of AI translation services.