Credit Boom Warning Sign? Buybacks Hit $1 Trillion
Corporate buybacks have surpassed the $1 trillion mark for the first time since 2009, a sign the credit boom is reaching new heights, according to Brian Reynolds, chief market strategist at Rosenblatt Securities.
"Buyback announcements for the S&P have now topped the trillion dollar mark for this credit boom. And even though this boom is about to begin its fifth year, this past month has seen the fastest growth for buyback announcements, as if CEOs are making up for lost time," Reynolds said in a note on Wednesday.
He said buybacks, where a company repurchases its own outstanding shares to reduce the number of shares in the market, have helped boost share prices.
"Buybacks have been the main driver of higher equity prices during the current credit boom, which began in 2009, as all other major stock market participants combined have been net sellers."
Since March 2009, the S&P 500 has risen from its low of 676 to Wednesday's close of 1541, an increase of almost 104 percent.
According to Reynolds, the boom in buybacks is set to continue unabated, after some weakness at the beginning of the year.
"Buyback announcements got off to a sluggish start this year, partly because many CEOs advanced dividends at the end of last year to beat tax hikes, and partly because CEOs were spooked about fiscal cliff issues, even though the credit market kept on humming."
The credit boom, especially the increased issuance of collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs) has sparked worries of a return to the heady days before the financial crisis.
CDOs, which are complex securities, collateralized against an asset pool comprising of a variety of bonds, were blamed for the 2008 financial crisis.