U.S. Buybacks Seen At Record Highs Ahead Of Earnings Reports

U.S. stock buybacks appear to be hitting new records as companies head into quarterly earnings season, even as some investors worry about the growing threat of inflation, a potential recession and stagnant share prices.

New repurchase announcements by U.S. companies reached over $300 billion in the first quarter, with March showing a strong year over year increase, suggesting buybacks have remained resilient in recent weeks, according to financial data firm EPFR, Informa Financial Intelligence.

Seen as a major contributor to Wall Street's gains in the past several years, stock buybacks will be in the spotlight when results are unveiled. Companies typically buy back their shares when they are feeling confident about the future and view their stock prices as undervalued.

Investors are broadly worried about inflation and the threat of a recession on corporate outlooks, which could sour the willingness of companies to return money to shareholders in the form of big buybacks and dividends.

JPMorgan Chief Executive Officer Jamie Dimon said on Monday his bank would reduce its stock buybacks over the next year to meet capital increases required by federal rules.

Also on Monday, Starbucks Corp said it would pause billions of dollars of stock buybacks to invest more in employees and stores at a time when the coffee seller faces growing unionization of its U.S. workforce.

"I don't think these are one-offs. I think you're going to see more companies perhaps slow down their buyback process and be more like they were in early 2020, thinking, 'how much cash do I need on my balance sheet to weather this particular storm if in fact we go into a recession'," predicted Art Hogan, chief market strategist at National Securities in New York.

Graphic: S&P 500 buybacks hit record highs-

S&P 500 companies plowed around $880 billion into buying their own shares last year, up from $520 billion in 2020, according to S&P Dow Jones Indices.

Goldman Sachs in a report last month estimated S&P 500 companies in 2022 will spend $1 trillion buying up their own shares.

EPFR, Informa Financial Intelligence analyst Winston Chua, who tracks new buyback announcements, said that - at least for now - companies appear to be aggressively repurchasing their shares. New buybacks announced in March reached about $74 billion, compared to $54 billion in March 2021, Chua said.

Grace Peters, EMEA head of investment strategy at JPMorgan Private Bank in London, predicted that major companies' relatively strong balance sheets will give them the security to continue their current strong pace of buybacks.

Analysts on average expect S&P 500 companies' earnings to have grown 6.4% in the March quarter, according to I/B/E/S data from Refinitiv, compared to over 30% growth in the prior quarter.

The benchmark stock index remains down almost 6% from its record high close in early January, partly recovering from a loss of about 13%.

"Earnings look robust yet there is huge volatility. That's a classic thing company boards would look at," Peters said.