Forget QE, Wall Street’s new drug is the stock buyback

MarketWatch.com ^ | July 17, 2015 | Wallace Witkowski

[upbeat5]

With the Federal Reserve’s quantitative-easing program out of the picture, share buybacks are now the preferred way to boost stock prices in the face of softening earnings. But like QE, it is unclear how long the buyback boom can last.

In the first quarter of 2015, companies in the S&P 500 index SPX, -0.05% returned more money to shareholders than they earned. The last time that happened was in the fourth quarter of 2008, when the entire S&P 500 reported a slight loss for the quarter but still spent $110 billion on dividends and buybacks.

“This is not a normal trend,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “This is a large amount of money being returned with the majority of it in buybacks.”

In the first quarter, S&P 500 companies spent $237.69 billion on dividends and buybacks, while reporting operating earnings of $228.36 billion, according to data compiled by Silverblatt.

[upbeat5]

This is one of the reasons that the Fed does not want to raise interest rates.

[RoosterRedux]

I like buybacks. A company can show a loss and still have a strong cash flow...and if your own stock looks like a good buy, get it.

[musicman]

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[Sequoyah101]

Better to take cap gains than dividend income.

Buybacks also mean that the company can’t find enough places to spend profits effectively... or won’t create new jobs to spend profits effectively.

[cymbeline]

“Buybacks also mean that the company can’t find enough places to spend profits effectively... or won’t create new jobs to spend profits effectively.”

I think our anti-business climate in America makes it very difficult for companies to find new business opportunities to invest in.

As far as creating jobs is concerned, that’s not an objective of businesses. Their job is to find moneymaking ideas which, by the way, will require additional employees.