- Many who wanted to reinvest in their businesses by spending on new equipment, found limited inventory to buy due to supply chain delays.
- Buybacks, which were restricted last year, are viewed as a more flexible option. They are easier to pull back compared with other forms of capital investment, Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, told the Wall Street Journal.
Catch up quick: Buybacks among S&P 500 companies reached $370.4 billion, up 29% in the first half of this year versus the same period in 2020, according to S&P Global Market Intelligence via the Journal.
- Capital expenditures reached $337.2 billion, up 4.8%.
Yes, but: Buybacks from the top 20 companies made up the majority (55.7%) of last quarter’s buybacks — up from pre-pandemic historical averages (44.5%) but down from last year (87.2%), according to S&P Dow Jones Indices.
The big picture: Capital spending started to pick up in the second quarter of this year, eclipsing pre-pandemic levels, especially in areas of technology as the world moved to a remote work environment.
What they’re saying: Even though the absolute number of dollars spent on buybacks is high, the yield — what’s been repurchased compared to market caps — is low and still below pre-pandemic levels, Saira Malik, chief investment officer for Nuveen, tells Axios.
- “Corporate buybacks are a sign of confidence in a company’s own business model [as well as] a sign of confidence in the stock market and with valuations where they are,” she added.
The intrigue: Part of the hesitation to repurchase shares even more strongly is because of this market rally, according to Malik.
- “Some corporates are more concerned about the valuations of the stock price and want to make sure that if they’re going to increase buybacks, they’re doing it when they feel that their stock price is more attractive.”
What to watch: Buybacks may reach a peak by early 2022, says Malik.
- New taxes, proposed to help pay for President Biden’s domestic spending plan, could play a role in decreasing buyback levels.
(Get Axios in you inbox: Click Here)
The views expressed in content distributed by Newstex and its re-distributors (collectively, “Newstex Authoritative Content”) are solely those of the respective author(s) and not necessarily the views of Newstex et al. It is provided as general information only on an “AS IS” basis, without warranties and conferring no rights, which should not be relied upon as professional advice. Newstex et al. make no claims, promises or guarantees regarding its accuracy or completeness, nor as to the quality of the opinions and commentary contained therein.