- A record rise in corporate buybacks could help the stock market bottom out, JPMorgan said.
- The bank estimated that buybacks were three to four times higher than usual during the ongoing sell-off.
- S&P 500 companies have announced $429 billion in buybacks in 2022, a higher pace than in 2019 and 2021.
The stock market could be close to bottoming thanks to continued execution of share buybacks by corporations, JPMorgan said in a note on Wednesday.
Corporate buybacks have rebounded considerably during the ongoing stock market slump, with a record number of buybacks announced so far this year, according to the bank.
“In the latest sell-off, JPM estimates repo executions 3-4 times higher than trend, implying the corporate put option remains active,” said JPMorgan’s Marko Kolanovic.
Companies in the S&P 500 have announced a record amount of buyback activity so far this year, at $429 billion. That level represents stronger pace to date than 2019 and 2021, according to Kolanovic.
In the first quarter of 2022, buybacks increased 45% year over year and 3% quarter over quarter. Much of that growth came in the technology, finance and healthcare sectors, with share buybacks totaling $62 billion, $49 billion and $39 billion, respectively.
Energy companies have also significantly increased their share buyback activity as they benefit from higher oil prices, with the sector buying back $9.5bn worth of shares compared to just $500m in the first quarter of 2021.
The trend of elevated share buybacks should continue for the next several weeks as more companies emerge from the lock-in period after reporting quarterly earnings results. JPMorgan estimates that 15% of companies are still in the blackout window.
JPMorgan believes that the elevated corporate share buyback activity has not been widespread and is likely to continue as companies continue to generate strong cash flow with healthy margins, even in the face of what many market participants see as a risk. raised from
JPMorgan also expects month-end rebalancing flows to boost stock outperformance by 1% to 3% over the next week as pensioners sell bonds and buy stocks.
That, combined with the worst investor sentiment since the Great Financial Crisis in March 2009 and strong corporate share buybacks, gives JPMorgan the conviction that the bottom of the stock market is near, if it hasn’t been touched yet.