Weekly Market Update
Stocks finished Friday almost 2.5% higher and allowed the S&P 500 to avoid a fourth straight week of losses, a streak that hasn’t occurred since September 2020, as investors have continued to be whipsawed by extreme market volatility. Dramatic intraday swings hallmarked every day this week, but Monday was particularly volatile with the Dow Jones Industrial Average falling by over 1,200 points and the Nasdaq down almost -5% in the afternoon, before a massive rally in the last hour of trading enabled all three major US stock indices to finish the day positive. However, the market was unable to build off Monday’s rally and Wednesday’s Fed announcements reinforced existing concerns of a hawkish Fed, as Chairman Jerome Powell highlighted persistent inflation and did not rule out an aggressive tightening cycle (i.e., +4 Fed interest rate hikes in 2022). Nonetheless, Friday’s market close was encouraging as stocks shrugged off the morning’s PCE report showing the highest inflation since 1983, and stocks finished at their highs of the day. In addition, the recent surge in interest rates continued to moderate, as despite spiking immediately after Wednesday’s Fed meeting, most rates settled close to where they started the week.
Return of the…Share Buybacks
During Monday’s wild swings we sent out a short market update to clients that mentioned the return of share buybacks potentially lining up well with the end of the week and we wanted to expand on this thought. Heading into every quarterly earnings season, companies institute blackout periods where they cease to engage in corporate share buybacks, typically two weeks before the end of the quarter and 48 hours after they report earnings. Therefore, with the fourth quarter S&P 500 earnings season unofficially kicking off with the banks during the first week of January, it is notable that there have been virtually no corporate buybacks so far in 2022.
Why is this important? Per data from Goldman Sachs, the largest purchasers of stocks in 2021 were US corporations. Furthermore, share buyback authorizations last year hit an all-time high (see chart below) and while a portion of that occurred in 2021, Goldman Sachs estimates that 2022 US corporate share buyback capacity will be a record +$975B, or roughly $245B per quarter. As a result, with 33% of companies in the S&P 500 now having reported Q4 results, and the mega caps Microsoft, Apple, Amazon, Facebook, and Alphabet either releasing earnings this week or next, it will be very interesting to see how the resumption of corporate share buybacks impacts a market that is materially cheaper than it was entering the year.
Ian G. Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO
