Company stock buybacks are on track to hit a record $1 trillion amid ongoing economic recovery

Company stock buybacks are on track to hit a record $1 trillion amid ongoing economic recovery
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  • US companies are set to spend a record $1 trillion on stock buybacks amid the ongoing economic recovery, according to a JPMorgan note.
  • The surge in stock buybacks comes after the COVID-19 pandemic hampered the practice amid heightened economic uncertainty.
  • Leading the charge is Apple's $90 billion stock buyback announced earlier this year.
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Corporate share repurchases are returning with a vengeance this year after the COVID-19 pandemic sidelined the popular shareholder return practice.

According to a Tuesday note from JPMorgan, corporate stock buybacks are on track to hit a record $1 trillion amid the ongoing economic recovery. Amid the heightened economic uncertainty during the pandemic, corporate share buybacks fell to $525 billion, well below its previous record of $850 billion in the first quarter of 2019. Now, US businesses are on track for an annualized run rates of $775 billion in share buybacks, and could easily surpass its previous record by the end of the year, according to the note.
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The stock buybacks are being led by the tech sector, particularly by the largest company in the world: Apple.

Of the tech sector's announced $133 billion in stock buybacks so far this year, Apple is responsible for $90 billion. Alphabet is also driving a bulk of the buybacks in the communications sector, having announced a $50 billion share buyback program.

Meanwhile, of the financial sector's $90 billion in announced buybacks, Bank of America is leading the charge with a $25 billion share repurchase program. JPMorgan expects an increase in stock buyback programs from banks as the Fed eases its capital restraints on big banks.
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"Buybacks are re-emerging as a key theme with net buyback activity significantly improving this year after bottoming in the second quarter of 2020," JPMorgan explained, adding that buybacks are "likely to see rolling 12-month announcements surpass prior record level of $1 trillion."

The return of corporate share buybacks is just one reason why JPMorgan increased its year-end S&P 500 price target to 4,600 from 4,400, representing potential upside of 6% from Tuesday's close. "Assuming $875 billion in buybacks and dividend income of $575 billion over the next year, the expected shareholder yield is 3.9%. This is a significant cross-asset valuation support for equities at a time when 10 yr US bonds are yielding 1.2% and $13 trillion of global debt has a negative yield," JPMorgan concluded.
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Fundstrat's Tom Lee also views a surge in corporate share buybacks as one of six reasons why the stock market will remain resilient and move higher into year-end.

Company stock buybacks are on track to hit a record $1 trillion amid ongoing economic recovery
JPMorgan
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