Buyback Blackout Leaves U.S. Stocks On Own Prior To Earnings
By Oliver Renick
(Bloomberg) — U.S. stocks are entering part of the year when one of their biggest support systems is turned off.
Buybacks, which reached a monthly record in February and have surged so much they make up about 2 percent of daily volume, are customarily suspended during the five weeks before companies report quarterly results, according to Goldman Sachs Group Inc. With the busiest part of first-quarter earnings seasons beginning in April, the blackout is getting started now.
While the data isn?t conclusive, owning stocks during the five-week stretch when repurchases were curbed has generated a return that trails the market average over the past two years, according to data compiled by Bloomberg. That?s not surprising to Eric Schlanger of Barclays Plc, who says companies buying back shares have helped keep equities aloft.
?Blackout periods are on radar screens now because of valuations, the length of the bull market, and the consensus that buybacks have been a major part of the bull market,? Schlanger, head of equities for the Americas at Barclays, said by phone. ?With the S&P up around 2,100, people are going to be more attuned to possible fractures or previous areas of support changing than they were at 1,400.?
Companies in the Standard & Poor?s 500 have spent more than $2 trillion on their own stock since 2009, underpinning an equity rally in which the index has more than tripled. They spent a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled by S&P and Bloomberg show.
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