A force is about to return to the stock market that could ‘chase equities higher’
- S&P 500 companies will execute $800 billion in buybacks and return an additional $500 billion through dividends this year, J.P. Morgan’s U.S. stock strategist writes.
- “Despite the recent market volatility, buyback activity has been very strong during the fourth quarter and we expect it to remain robust,” writes Dubravko Lakos-Bujas.
- Canaccord Genuity echoes that call, saying that equity prices are “near the point” where buyback desks would likely feel the pressure to purchase and “chase equities higher.”
The largest public companies in the United States will continue to repurchase their own equity well into 2019 and goose the broader stock market higher, according to J.P. Morgan and Canaccord Genuity.
It’s expected that S&P 500 companies will execute some $800 billion in buybacks and return an additional $500 billion through dividends in 2019, J.P. Morgan’s chief U.S. equity strategist, Dubravko Lakos-Bujas, told clients Friday.
“Despite the recent market volatility, buyback activity has been very strong during the fourth quarter and we expect it to remain robust in 2019 given profit growth, lower valuation, and a record high $700 billion available to execute under existing authorizations,” Lakos-Bujas wrote in a note Friday.
And while the J.P. Morgan strategist acknowledged a more attractive leverage spread, he added that the brokerage still expects the upcoming corporate buybacks to be funded principally by cash flow and balance sheet cash.
“Buyback executions in 2018 have been some of the highest quality of this cycle as they have been predominantly funded by cash rather than debt, a trend we expect to persist into 2019,” Lakos-Bujas wrote. “If volatility remains elevated, corporates are likely to opt for buybacks over M&A and dividend growth.”
J.P. Morgan’s early call for persistent buyback strength came with the 2018 fourth-quarter earnings season in full swing. More than 20 percent of S&P 500 companies have already reported results, with more than 70 percent of the group topping Wall Street’s profit expectations.