- US companies are set to spend a record $1 trillion on stock buybacks amid the ongoing economic recovery, according to a JPMorgan note.
- The surge in stock buybacks comes after the COVID-19 pandemic hampered the practice amid heightened economic uncertainty.
- Leading the charge is Apple’s $90 billion stock buyback announced earlier this year.
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Corporate share repurchases are returning with a vengeance this year after the COVID-19 pandemic sidelined the popular shareholder return practice.
According to a Tuesday note from JPMorgan, corporate stock buybacks are on track to hit a record $1 trillion amid the ongoing economic recovery.
Amid the heightened economic uncertainty during the pandemic, corporate share buybacks fell to $525 billion, well below its previous record of $850 billion in the first quarter of 2019. Now, US businesses are on track for an annualized run rates of $775 billion in share buybacks, and could easily surpass its previous record by the end of the year, according to the note.
The stock buybacks are being led by the tech sector, particularly by the largest company in the world: Apple.
Of the tech sector’s announced $133 billion in stock buybacks so far this year, Apple is responsible for $90 billion. Alphabet is also driving a bulk of the buybacks in the communications sector, having announced a $50 billion share buyback program.
Meanwhile, of the financial sector’s $90 billion in announced buybacks, Bank of America is leading the charge with a $25 billion share repurchase program. JPMorgan expects an increase in stock buyback programs from banks as the Fed eases its capital restraints on big banks.
“Buybacks are re-emerging as a key theme with net buyback activity significantly improving this year after bottoming in the second quarter of 2020,” JPMorgan explained, adding that buybacks are “likely to see rolling 12-month announcements surpass prior record level of $1 trillion.”
The return of corporate share buybacks is just one reason why JPMorgan increased its year-end S&P 500 price target to 4,600 from 4,400, representing potential upside of 6% from Tuesday’s close.
“Assuming $875 billion in buybacks and dividend income of $575 billion over the next year, the expected shareholder yield is 3.9%. This is a significant cross-asset valuation support for equities at a time when 10 yr US bonds are yielding 1.2% and $13 trillion of global debt has a negative yield,” JPMorgan concluded.
Fundstrat’s Tom Lee also views a surge in corporate share buybacks as one of six reasons why the stock market will remain resilient and move higher into year-end.