U.S. companies’ shopping spree for their own shares helped put a floor on market declines in 2018. Don’t look for the same level of support in 2019, Trend reports referring to Reuters.
Wall Street’s recent volatility has optimists betting that buybacks could provide the market with an even better buffer in 2019. But many strategists see the lift from buybacks - a major factor behind the bull market - losing some force as earnings growth slows while tax policy bonanzas fizzle out.
“Companies bought back around 2.8 percent of shares outstanding in 2018. That was a substantial support to the market and bigger than dividends,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.
“(In 2019) we expect the corporate firepower behind share buybacks to be diminished. The growth in cash flow will be slower.”
Last year will likely go in the books as a record for buybacks. Through the first three quarters of the year companies bought $583.4 billion of their own stock, just shy of 2007’s full-year record of $589.1 billion, according to S&P Dow Jones Indices data.
But even that was insufficient to prevent 2018 ending with a resounding thud for U.S. stocks as the S&P 500 .SPX tumbled nearly 20 percent from its late-September high, although it probably prevented losses from being even deeper. For the year, the index fell 6.2 percent, its poorest showing in a decade.