CNBC's Liesman: Stock Buybacks May Be Helping Prop Up Market
A shrinking supply of stock might be helping to prop up the market.
Stocks continue to surge despite slower growth in earnings and the economy--and one of the main reasons might be tied to the dwindling supply of stock amid higher demand, reports CNBC’s Steve Liesman.
“Surging global liquidity has led to two trends: share buybacks and private equity deals, both of which result in less stock available to the market,” Liesman said. “With a surge of demand for stocks raising values, stocks seem able to prosper even while earnings growth eases. It could be as simple as supply and demand.”
The supply of available shares started to decline about three years ago. In the fourth quarter, companies retired “a record $700 billion of stock at an annual rate,” he said.
“We see this trend as continuing on, said Howard Silverblatt, senior index analyst at Standard & Poor’s. He sees "buybacks continuing on throughout the year because of the liquidity out there, companies have money, and the (earnings per share) pressure. M&A is only increasing, again, because of the liquidity."
In fact, S&P estimates that amount of retired shares is on track to hit a 42-year record as mergers, acquisitions and buybacks continue. About $1 trillion in stock--an estimated from $640 billion from private equity deals and $400 billion from buybacks--could potentially come off the market in 2007, assuming no or limited share issuance.
The first-quarter is already the third-largest on record for buybacks.