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Look Who's Plowing $1,000,000,000,000 into Stocks

"Buyback Fever" is burning hotter than ever

by Bob Stokes
Updated: August 01, 2019

Companies are buying back their own shares at a furious pace.

It's not always been so. As EWI has noted before, companies acted in a restrained manner for decades until the final quarter of 1999 and the first quarter of 2000. The amount that companies bought of their own stock during each of those quarters was $185 billion. Then, they tapered off.

However, the December 2017 Elliott Wave Theorist explained what happened later:

BuybackFever

In late 2003, companies began a surge of buying that has dwarfed all previous experience. Their rate of buying peaked at just under $700 billion in the third quarter of 2007, the very quarter of that era's all-time high in the Dow Jones Composite Average. After the stock market low of 2009, they engaged in another buying binge that has lasted to the present.... The total amount of buying over the past seven years has dwarfed that of any prior seven-year period.

With that perspective in mind, consider this excerpt from a July 29 CNBC article:

Share buybacks are expected to approach $1 trillion this year, according to Goldman Sachs.

Buybacks have exceeded free cash flow for the first time since the financial crisis.

Yes, companies are "increasingly using debt" to buy their stock.

This action by corporations ties in perfectly with what the July 2019 Theorist has to say:

Financial optimism and complacency are epic.

The "buyback boom" could continue for a time.

Yet, keep in mind that financial history shows that such bold expressions of financial optimism do not persist indefinitely without interruptions. For example, on the chart, you see the dramatic drop in corporate buybacks in 2008-2009.

The Elliott wave model indicates when that next interruption is likely to occur.

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