It was just in the week of June 25, before the surprise of the Brexit news, that the market was told about record stock buybacks in the first quarter of 2016. Standard & Poor’s showed that buybacks were up a whopping 12% in the S&P 500 companies alone. Now a separate buyback report is signaling the polar opposite – since then buybacks have ground down to a crawl.
A fresh report from TrimTabs is signaling that the announced stock buybacks by U.S. companies in June were the lowest for the year. What Trim Tabs is taking from this is that it continues a trend that the long-term does not bode well for U.S. equities. After all, it is widely agreed upon that buybacks have continued to be a major fuel for the bull market of the past five years.
What TrimTabs is really saying is that the erosion of corporate buybacks signals longer term foundational problems for U.S. equities.
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Monday’s report noted that U.S. companies had announced only $11.8 billion in new stock buybacks in June through Friday, June 24. And to make matters worse, only four companies had announced plans to repurchase at least $1 billion this month.
While that buyback was a record in the first quarter, TrimTabs showed how June is capping off a very weak buyback trend for the second quarter and how it is dragging on the year. They noted that buyback announcements from U.S. companies totaled $291.7 billion so far in 2016, some 32% lower than the $432 billion in the same period of 2015.
A combined quote from the report was from David Santschi, chief executive officer of TrimTabs:
Corporate America announced $2.8 trillion in stock buybacks in the past five years, and these buybacks have provided a key source of fuel for the bull market. Corporate actions this year suggest this support is going to diminish.
Even if some of the too-big-to-fails roll out buybacks after the release of the second part of the Fed’s stress test results, this month’s volume is likely to be among the lowest in the past three years.
The sharp decline in buyback announcements suggests corporate leaders are becoming more cautious, and it doesn’t bode well for the U.S. stock market.
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It is important to keep in mind that this is the last week of June. Many stocks just saw their shares crushed on the Brexit news. Maybe some companies will do larger than normal buybacks in the open market as a result. That being said, TrimTabs is looking at the actual new buyback announcements. That means that the pipeline for future buybacks may be thinning out.
Stay tuned.
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