Stock buybacks are soaring in a sign that corporate America is bullish on the US economy.
Companies have announced share repurchases of more than $383 billion in the last 13 weeks, up 30% from the year-earlier period and the largest sum since June 2018, per research from Deutsche Bank. The total includes Apple's $110 billion plan, the largest buyback in history.
The equity strategy team at Deutsche Bank notes that the "boom" in buybacks extends beyond the big names like Apple (AAPL) and Alphabet (GOOG, GOOGL), which just announced a $70 billion buyback plan. Of the $262 billion in buybacks reported in first quarter earnings season, $82 billion has come from companies outside the large tech giants.
This is a welcome sign for those looking for a broadening out of the stock market rally.
"Buybacks have been the biggest driver of equities over time in the medium term," Deutsche Bank chief equity strategist Binky Chadha told Yahoo Finance ahead of the start of first quarter earnings reports.
To Chadha, the importance of buybacks is simple: They tell investors how companies feel about the macro environment.
Buybacks typically rise when earnings rise, Chadha said. This is because as earnings rise, which is currently happening at its fastest pace in nearly two years, cash flow at companies increases. Companies can then use this cash flow to increase dividends paid to shareholders, increase capital expenditures to invest back in the company, or repurchase stock, and, in turn, return capital to shareholders.
This trend failed to materialize in 2023. Earnings picked up, but buybacks didn't. Chadha reasoned this likely had to do with the overwhelming majority projecting a recession to hit the US economy.
"When macro consensus is for a severe slowdown, or recession, companies aren't going to do buybacks," Chadha said. "They're going to hold on to their cash."
But that macro consensus has shifted. Economists and macro strategists are feeling more optimistic about economic growth for the US this year. Corporations are confirming that confidence with buybacks.
"What you saw in [fourth quarter] earnings reporting earlier this year is that buybacks really started to move back up," Chadha said. "So I'd say that this cloud of a cyclical overhang is lifting. Corporates are getting more comfortable with the outlook."
JPMorgan Private Bank global investment strategist Elyse Ausenbaugh noted that the tick-up in buybacks provides a "nice foundation for investors" as companies buying back their stock helps support the market even if individual equity investors aren't pouring money into stocks.
And taken one step further, Ausenbaugh sees buybacks as just part of the case building in first quarter earnings that companies are seeing higher cash flows and using them in ways that should eventually benefit shareholders, like boosted capital expenditures for Big Tech companies.
"[Boosted capex is] going to continue to power these trends that have offered a lot of support for the market, like AI," Ausenbaugh told Yahoo Finance.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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