Stock buybacks, which have helped power the 7-year-old bull market, are showing their first signs of retreat in at least three years.
Share repurchases decreased 3.4 percent in the fourth quarter from the previous three-month period and are tracking at a 21-month low in March, according to respective data from S&P Dow Jones Indices and TrimTabs.
For all of 2015, share repurchases totaled $572.2 billion, an increase of 3.4 percent from 2014.
However, the pendulum could be turning, due in part to several factors...
Buybacks are becoming an increasingly inefficient way to boost share prices, with individual companies that devote a large share of buybacks underperforming their peers over the past year.Caterpillar, for instance, has been a company aggressively buying back shares but with little to show performance-wise. The company has spent more than $8 billion buying back shares over the past three years, a time during which its stock has declined more than 12 percent.
Companies that haven't spent a single dollar on stock buybacks have performed better than those that have, according to an analysis of FactSet indexes since 2005.
At the most basic level, the companies spending the most on buybacks in the S&P 1500 appear to simply perform worse as a group...
Heavy buyback activity helps keep earnings per share steady, but it can also increase the price-to-earnings ratio (because manipulating the number of shares outstanding does not create additional earnings
The Establishment data that gets all the headlines blared that 242,000 net new jobs were created in February. ..... Trim Tabs, a privately run independent company that monitors actual real time payroll withholding tax info issued a report two days ago which said the number of new jobs created in February was between 55,000 and 85,000, based on actual withholding tax data. If you are employed, payroll taxes are automatically extracted. This data cannot be manipulated by the government propagandists. It reveals the truth. No seasonal adjustments, tweaks or phantom jobs added. It’s pure tax data.
“The U.S. labor market is weaker than the conventional wisdom believes. We estimate based on real-time income tax withholdings that the U.S. economy added between 55,000 to 85,000 jobs in February, down from 175,000 to 205,000 jobs in January. Last month’s growth was the lowest since July 2013.
We cite a range rather than a single figure for our February estimate because the timing of bonus payments impacts withholdings at this time of year and makes our year-over-year analysis more challenging than usual. Part of the sharp deceleration in wage and salary growth in February was likely due to shifts in bonus payments, but the deceleration was too sharp to be explained by bonus-related factors alone.
Our estimate is not an attempt to predict the initial estimate that the Bureau of Labor Statistics (BLS) will report on Friday. The BLS data is subject to so many seasonal adjustments and so much statistical manipulation that we have no way to know what the BLS will report.”
Concerns about immigration or international trade, on the other hand, are driving anxieties of some who have experienced significant income compression. However, most countries around the world seem to be struggling with many of the same problems, suggesting U.S. income compression is tied to a global trend.
Realistically, a large portion of the U.S. income compression stems from economic globalization. For many years, overseas competition has restricted U.S. income growth while basic living costs have continued to rise. If globalization is an important part of the problem, political change that makes us less competitive could compress U.S. incomes even more
As the broader mortgage market remains in the doldrums, banks are again touting home-equity lines of credit, which allow homeowners to draw down the equity in their home as they need the cash, as well as cash-out refinances, which involve taking cash out of a home while refinancing and ending up with a larger mortgage balance.
The effort is gaining steam as banks try to offset faltering mortgage originations and a refinancing wave that is fizzling out. Lenders are betting that offers for home-equity lines of credit, or helocs, will resonate with many borrowers whose home values are higher than they were just a couple of years ago and who need cash for renovations or other expenses after holding on to their homes for longer than expected....
At 3M, for example, research and development expenditures plus strategic acquisitions have totaled $22 billion over the last five years, Mr. Kanzer said. In the meantime, the company’s buyback program has cost $21 billion.
“When the buyback almost equals all the other expenditures, it makes sense to ask questions about whether there’s a more constructive way to invest that capital,” Mr. Kanzer said....
“You really have to ask why a company’s board decides to return a big chunk of capital instead of replacing managers with ones who can figure out how to develop the operations,” said Gary Lutin, who oversees the Shareholder Forum.
“If the board doesn’t think it’s worth investing in the company’s future,” Mr. Lutin added, “how can a shareholder justify continuing to hold the stock, or voting for directors who’ve given up?”