S&P 500 companies have bought back a whopping USD 3.5 trillion of their own stock since 2011. While other factors like economic growth, sales and profit margins might provide more tangible clues on the outlook for equities, the power of buybacks should not be underestimated.
This is exactly why Ed Clissold, strategist at Ned Davis Research, has attempted to quantify the impact of buybacks on stock market performance. His conclusions are that the S&P 500 Index would be 19% lower if buybacks didn’t exist. If companies simply held the amount they spend on buybacks in cash, the S&P would be 5% lower, he argues.
Obviously, such calculations are constrained by assumptions, but I’m pretty convinced that equity prices, especially those in the US, have been pushed up further by these repurchases.
