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It’s easy to be cynical about buying back stocks. So we often do.
A normal reader should know the discussion by now. Buybacks can reduce the cost of capital for a company and be read as a signal of discipline regarding spending, but can also lead to poor fair value capture for management while causing sales by passive investors. A mechanical increase in earnings per share should not change the basic valuation of a company, but it can help you hit a bonus goal of printing new stocks about as much as you would have bought back. Somehow, somewhat, somewhat.
Anyway, here’s the chart:
The monthly US and non-US stocks announced a repurchase in $ billion. The data is Mtd. ©JPMorgan
April was an absolute monster in corporate stock repurchase. According to JPMorgan data, the weekly entry into the S&P 500 and subsequent recovery have led to US companies buying stocks at the fastest pace in years.
“The strength of the April buyback will once again demonstrate the rather reverse nature of corporate purchases that tend to increase after stock revisions and serve as a backstop.”
And certainly, a similar pattern will be revealed through the inflationary fears in Ukraine in early 2022 and the SVB crisis in the first quarter of 2023.
Quarterly US and non-US shares announced $bn buyback per quarter. Q2 2025 is Qtd. ©JPMorgan
Buying dip isn’t necessarily a bad strategy, whatever the management’s motivations are. However, what insiders are trying to misuse doesn’t help with IPO plans. Global issuances have been weak since the end of 2021 and are unlikely to recover anytime soon, so the recent mass buybacks mean that the stock market is on track for the fourth year in a row.
NET Equity Issuance is published worldwide at $bn and is proxyed by changes in the MSCI AC World Index Shet Account ©JPMorgan
As a result, there are fewer stocks where more investors are issued money, and valuation measurements are narrowed down. JPMorgan’s data shows that net equity inflows have been around 1.3tn since the end of 2021 as the global equity market has contracted.
Global Equity & Bond Funds flow, including $BN annual net sales, i.e. net sales + reinvestment dividends for mutual funds and ETFs worldwide. © via JPMorgan ICI, Lipper, and Bloomberg
Buying stocks to increase rarity is an overly crude strategy when applied to individual companies, but in these times, when applied across the market, it probably makes some sense to some extent. Ergo, buyback will increase inventory. Discussion. I’m glad it was resolved.
