Tuesday, March 26, 2019

Stock Buyback Boom In 2018

Yesterday S&P Dow Jones Indices reported stock buyback activity for the S&P 500 Index as of the end of the fourth quarter 2018. Highlights from S&P DJI report:
  • Q4 share repurchases increased 62.8% year-over-year to a record $223.0 billion
  • Total 2018 buybacks set record $806.4 billion, up 55.3% year-over-year, and up 36.9% from the record $589.1 billion set in 2007
  • Almost every S&P 500 constituent – 444 – repurchased shares in 2018, up from 424 in 2017
  • Apple spent the most in 2018 buybacks at $74.2 billion

The level of buybacks provided a tailwind for earnings growth in the fourth quarter as well as the entire calendar year 2018. S&P DJI notes, "the percentage of companies that substantially reduced share counts of at least 4% year-over-year rose to 18.8% (90 total issues), up from the prior quarter’s 17.7% (88 total issues) and Q4 2017’s 15.1% (70 total issues.)" The four quarter buyback plus dividend yield equaled 6.0% in Q4 2018 and up from 4.75% in Q3 2018.

Lastly, S&P DJI listed the below five companies as having the largest total buybacks in the fourth quarter,

  • Apple (AAPL) led in buybacks, spending $10.1 billion in Q4 2018, down from $19.4 billion spent for Q3 2018. Its Q4 2018 expenditure ranked 19th highest historically; for the year, Apple spent $74.2 billion on buybacks, up from 2017’s $34.4 billion; over the five-year period the company spent $229.0 billion, and $260.4 billion over the 10-year period.
  • Oracle (ORCL): $10.0 billion for Q4 2018, down from $10.3 billion for Q3 2018; 2018 was $29.3 billion, up $4.0 billion in 2017.
  • Wells Fargo (WFC): $7.3 billion for Q4 2018, slightly down from the $7.4 billion spent in Q3 2018; 2018 was $21.0 billion, up from $10.3 billion in 2017.
  • Microsoft (MSFT): $6.4 billion for Q4 2018, up from $3.7 billion for Q3 2018; 2018 was $16.3 billion, up from $8.4 billion in 2017.
  • Merck (MRK): $5.9 billion for Q4 2018, up from $1.0 billion for Q3 2018; 2018 was $9.1 billion, up from $4.0 billion in 2017.


Thursday, March 21, 2019

Equity Inflows Now Turning More Positive As Equity Returns Near A Peak?

The Investment Company Institute releases fund flow and ETF net issuance data on Wednesday's with a one week lag. In Wednesday's report for the week ending March 13, 2019, ICI reports domestic equity inflows spiked to $12.8 billion. This represents the largest weekly inflow since March 20, 2018 when domestic equity inflows totaled $19.1 billion.



Sunday, March 17, 2019

The FAANG Trade In Focus Again

Since the equity market peak in the third quarter of 2018, the average return of the FAANG basket of stocks, i.e., Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet f/k/a Google (GOOGL), has underperformed the broader S&P 500 Index as seen below. I have highlighted the significant contribution the FAANG's have had to overall market returns in prior posts like the Growth verses Value article in 2017.  With the FAANG's return to the upside since the start of this year, the basket has resumed its outperformance and broken out of an inverse head and shoulders chart pattern (h/t: The Kirk Report).



Friday, March 15, 2019

Record Job Openings In A Tight Labor Market

With today's release of the January Job Openings and Labor Turnover Survey (JOLTS), there is further confirmation that the job market remains tilted in favor of job seekers. As Econoday noted in their report, "employers are increasingly scrambling to fill [openings]." Even with new hires increasing by 1.5%, openings exceed hires by a record 1.78 million individuals.



Saturday, March 09, 2019

Investors Have Missed Out On The Equity Rally

From 2014 to mid-2015, investors seemed to have a favorable view on stocks if one bases the observation on ETF and mutual fund flows. As the below chart shows, the increase in S&P 500 Index until mid-2015 coincided with positive flows into domestic equity focused mutual funds and ETF's. Beginning in mid 2015 though, investor flows turned negative (maroon line.) During late 2016 and early 2017 the cumulative maroon line became less negative indicating positive flows into domestic equities, but the sharp rally from 2017 to the market's peak at the end of the third quarter of 2018 was not supported by positive domestic equity flows. In fact, domestic equity flows have been negative to the tune of -$1.5 trillion over this five plus year period.