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.”

Liquidity Fuels Buybacks & Buyouts
Liquidity Fuels Buybacks & Buyouts   

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.