Stock buybacks are definitely for another record

Firms in the S&P 500 have outlined buyback plans worth $238 billion during the first two months of 2022, a high for this point in the year, according to data from Goldman Sachs Group Inc.

They seem to be taking advantage of the volatility that has rocked the markets recently. Stocks have come under pressure this year due to the pace of the Federal Reserve’s plan to raise interest rates, Russia’s invasion of Ukraine and a jump in commodity prices that could stall the economy. The S&P 500 is down 12% year to date.

Repurchases can back up the shares by reducing the company’s share count, increasing the profit per share. And they can boost investor sentiment by suggesting that executives are optimistic about their companies’ prospects and confident in their financials.

“It adds a layer of overall support during periods of volatility,” said Anthony Saglimbin, global market strategist at Ameriprise Financial.

Union Pacific Corp. has outlined plans for a stock-buyback plan worth about $25 billion, while PepsiCo Inc. and industrial-gas company Linde Plc said they plan to repurchase up to $10 billion in stock .

The surge of activity has continued into March. Amazon.com Inc. last week said it would buy back up to $10 billion in shares, while Colgate-Palmolive Co. and Best Buy Co. unveiled plans for $5 billion.

Analysts at Goldman recently raised their 2022 forecasts for buybacks to a record $1 trillion, which would represent a 12% increase from last year when repurchase activity helped the S&P 500 gain 27%. .

Analysts said the breadth of buyback activity is nearing an all-time high, with the number of active programs being double the normal figure.

To be sure, some investors worry that buybacks redirect corporate spending away from capital spending, research and development, and workers’ wages — pushing stock prices up in the short run at the expense of long-term growth. .

In mid-December, the Securities and Exchange Commission proposed greater disclosure requirements on buybacks, which would force companies to expand their reasoning and the criteria they use to determine the amount of shares for repurchases.

That hasn’t stopped companies from planning more buybacks this year.

“The companies, over the past six to twelve months, have built a fort in their balance sheets,” said Jessica Beymer, portfolio manager at Easterly Investment Partners. “They are able to protect their company in a way that gives us some comfort as we move through the uncertainty.”