S&P 500 Buybacks Hit Record After Covid Pullback

Following a brief pullback in 2020, stock buybacks returned to their pre-pandemic trend this year and are currently on track to reach a new all-time high in 2021. According to preliminary data from S&P Dow Jones Indices, S&P 500 companies collectively repurchased $234.5 billion in shares in the third quarter, exceeding the previous record of $223 billion set in Q4 2018, the biggest year for stock buybacks so far.

The surge in stock buybacks has helped the market rocket back from its brief Covid slump, as the S&P 500 flew from record to record this year. On Friday, the index logged its 67th record close this year, as it's up 25 percent over the past eleven and a half months. While stock buybacks aren’t the only driver behind the latest stock market rally, they are one contributing factor along with fiscal stimuli and a sustained low interest rate environment.

Stock repurchases have the potential to boost share prices in numerous ways. Most importantly, they reduce a company’s share count, thus limiting supply and increasing its per-share profits. They can also improve investor sentiment by suggesting that a company’s leadership is confident about its prospects and feels its stock price is undervalued.

When used excessively, buybacks can also have be seen as a negative, however, as they take away funds from possible investments and are sometimes viewed as a way for executives to boost the value of their stock options.