Profit Confidential Says Corporate Stock Buybacks Continue to Prop Up Aging Bull-Market
Profit Confidential is weighing in on how near record corporate share repurchase plans are supporting the third longest bull-market in history.
New York, United States – March 31, 2016 /MarketersMedia/ —
Profit Confidential (www.ProfitConfidential.com) an e-letter of Lombardi Publishing Corporation, a 30-year-old consumer publisher that has served over one million customers in 141 countries, comments on the stock-market and explains why corporate share repurchase programs are the only thing holding up stock prices.
“Despite weak fourth quarter results and a bleak first-quarter outlook, stocks continue to trade near record levels. Investors need to ask themselves ‘what is supporting stock prices?’ Retail investors have been withdrawing billions from stock market funds and institutional investors have been selling stocks as bearish sentiment increases,” says economist and lead contributor Michael Lombardi. “On top of that, corporate insiders are selling at an unprecedented rate.”
Lombardi explains the one thing supporting the bull-market right now is corporate stock buyback programs. The dollar amount spent on share buybacks for the trailing twelve-month period ended October 31, 2015, represented 64.6% of net income. Over the same period of time, 130 companies on the S&P 500 spent more on share buybacks than they generated in net income. This represents the biggest percentage since October 2009, when buybacks made up 74.8% of net income. (Source: “Buyback Quarterly,” factset.com data set, December 15, 2015; http://www.factset.com/websitefiles/PDFs/buyback/buyback_12.15.15)
In the first quarter of 2016, S&P 500 companies are on pace to repurchase as much as $165 billion of stock; the largest amount since a record $171 billion was purchased in the third quarter of 2007. (Source: “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive,” Bloomberg.com, March 14, 2016; http://www.bloomberg.com/news/articles/2016-03-14/there-s-only-one-buyer-keeping-the-s-p-500-s-bull-market-alive)
“While companies have limited resources, over the last number of years, the Federal Reserve’s monetary policies and artificially low interest rates have made it much easier for businesses to borrow and use that money to repurchase stocks,” Lombardi adds. “If corporate share buyback programs are halted. Without this demand, the support for stocks disappear and share values plummet.”
Lombardi points out that the rally in stock prices over the last few weeks was a result of oversold market conditions. Going forward, corporate America cannot continue to support their own share prices through stock repurchase programs unabated.
“Investors need to see S&P 500 companies report real, sustainable growth,” Lombardi concludes. “This may not be possible in the midst of falling profits and rising interest rates. I believe stock prices are headed much lower in 2016 and that a stock market crash is still a possibility this year.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.
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