Analysts may have predicted $1 trillion in buybacks to boost a stock market “come back,” but after a rough end…
Analysts may have predicted $1 trillion in buybacks to boost a stock market “come back,” but after a rough end to 2018, strategists suggest rethinking that idea. Investors may be better off placing their money in other areas of the market and they should expect fewer buybacks thanks to blackout periods and rising interest rates from the Federal Reserve.
Running with the bull market
After the market experienced the longest-running bull market since WWII, many investors figured the good times would continue to last. The S&P, DOW, and Nasdaq got pummeled with plenty of losses in 2009, so their rebound following intense market volatility increased investor confidence.
Much of the market’s capital gains were due to the rise of tech stocks but a bear market and a recession may be creeping around the corner. Some investors are calculating the impact of tariff tensions, trade wars, and rising interest rates before hedging their bets. A smaller amount of buybacks will influence market gains.
Snags in the safety net
New tax reforms allow companies holding overseas cash to redistribute funds at a lower rate of 21% but there are fewer firms involved with buybacks. There is no protection against a possible major sell-off in the future but investors can feel confident about companies who are making buyback announcements. Before selecting stocks, investors should consider some vital data about companies. Firms making buyback announcements should display a positive history with buybacks and overall market performance, and shouldn’t go into debt to make buybacks. Companies will buy back shares to protect analyst projections and manage earnings per share.
Strategize for the market
Companies don’t always commit to buybacks for the right reasons and if a company is making an announcement when other metrics are falling apart, investors should be wary. Stocks that may climb after a buyback may take a tumble soon after, so it pays to evaluate influencing market factors, and a firm’s financial history and decision-making.