Stock buybacks are increasing in a sign that companies are feeling better about the trajectory of the US economy.
Companies such as Meta (META), Disney (DIS), and Uber (UBER) all announced plans to repurchase shares this earnings season. And according to data from Deutsche Bank companies are acting on these buyback authorizations, with S&P 500 members repurchasing $63 billion worth of their own stock during the first week of February, the highest single-week total for buybacks since May 2023.
Deutsche Bank director of global asset allocation and US equity strategy Parag Thatte explained to Yahoo Finance that as earnings rise, buybacks often follow suit. This happens because as earnings improve, companies’ free cash flow often increases. Corporates will first spend that money on paying down debt. Then, remaining funds are often utilized for paying dividends, boosting capital expenditures to reinvest in the company, and, potentially, buying back shares.
Stock buybacks lower the amount of total shares outstanding to the public, boosting investors’ stake in the company and their share of any potential dividends. It’s viewed as a positive for investors, but is often the first thing to be cut when times are tough.
This means that the return of buybacks can be seen as a sign that companies feel they’re in a stronger position than the past few quarters when buybacks hit a lull.
“They’re not yet stating that all is clear and we are maybe completely free of a slowdown,” Thatte said. “But at the margin they are saying, ‘Yes, we are seeing signs or things turning up.'”
