Investors Are Looking to Share Buybacks to Keep US Stock Market Afloat

Stocks started 2024 with a limp. But that could change this week as earnings season kicks off and companies start announcing their plans for share repurchases, something investors hope will help the market keep last year’s rally running.

Bulls may need the support, as hedge funds and retail investors are tilted defensively following the strong end to the year, with worries around the timing of the Federal Reserve’s rate cuts adding to the caution.

“I’m bullish on stocks in 2024, but it’s going to be a wild ride in the coming months since institutions are bearish,” said Brian Reynolds, chief market strategist at Reynolds Strategy, who correctly called the bear market during the 2008 global financial crisis. “Once the selling runs its course, companies will buy back their shares to push stocks back up.”

US corporations have been reluctant to repurchase their shares as the Federal Reserve pushed interest rates higher to fight inflation, which raised borrowing costs. Buybacks have fallen for five straight quarters after hitting a record in 2022, according to Bloomberg Intelligence. But with the Fed potentially getting ready to cut rates and earnings growth forecast to improve, investors expect more companies to deploy their newly available capital in the stock market.

The fate of the stock market doesn’t rest entirely on buybacks, however at nearly a trillion dollars a year, they represent one of the biggest buying forces around. S&P 500 companies spent nearly $800 billion on buybacks in the past year, down almost 20% from the same period the year before, according to data compiled by Bloomberg.

Buyback Spree