The Return of Stock Buybacks

2020 Stock Buyback Activity and Context

• Total share repurchase authorizations dropped approximately 45% to $508 billion, marking the lowest pace since 2012.
• Actual dollars spent declined 27% nominally to approximately $600 billion, matching volumes seen in 2016 and 2017.
• Approximately 20% of S&P 500 companies publicly terminated or suspended buyback programs, a level not witnessed since the financial crisis.
• An additional estimated 20% of S&P 500 companies suspended programs without public announcement.
• Financial sector buybacks were severely constrained as the Federal Reserve prohibited repurchases following quarterly stress tests.
• Repurchase concentration remained high, with the top five repurchasers accounting for 40% of total dollars and the top 25 accounting for nearly 80%.
• Technology companies dominated activity, comprising five of the top six buyback programs.

2021 Outlook and Drivers

• Repurchase authorizations in 2021 have risen approximately 60% year-over-year to $180 billion, with financials driving 30% of this volume.
• The Federal Reserve has authorized most large banks to resume share repurchase programs.
• The current high pace of activity is not viewed as sustainable for the full year.
• Analysts project a 15% year-over-year increase in dollars spent by the S&P 500 in 2021.
• Total U.S. market repurchase authorizations are estimated to reach approximately $800 billion for the full year, ranking as the fifth-highest level historically.
• Strong earnings growth and prioritized balance sheet strength are cited as primary drivers, with S&P 500 cash equivalents estimated at a historic high of $1.9 trillion.
• Low interest rates resulting in minimal returns on cash are prompting a shift toward returning capital via buybacks.
• Approximately $200 billion in unused repurchase authorizations from previous years is available to support 2021 activity.

Market Mechanics and Strategic Rationale

• High repurchase activity generally correlates with high earnings growth, high valuations, and elevated stock prices, creating a circular condition where companies with excess cash are best positioned to return it.
• A primary objective for many programs is offsetting dilution from stock option exercises, a trend that intensifies as rising stock prices bring more options "in the money."
• U.S. corporations have been the largest net buyers of U.S. equities for the last decade, excluding the 2020 anomaly.
• The corporate bid is expected to provide resilience and support during periods of broader market dislocation.

Political and Regulatory Environment

• The 2018 peak of $1.1 trillion in authorizations, coinciding with tax reform, previously triggered political scrutiny regarding the efficacy of tax savings utilization.
• While no new legislation was enacted in 2019, the topic was actively debated by politicians.
• As the economy turns the corner on the pandemic, a confluence of conditions is expected to increase the likelihood of share repurchases returning to the political spotlight for renewed debate and potential tax reform.