Buyback boom keeping the stock market afloat

Traders work on the floor of the New York Stock Exchange.
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Companies are still choosing to focus on boosting share price rather than making longer-term investments.

During the first quarter, at a time when the U.S. economy contracted 0.2 percent, companies were spending freely to reduce share count through stock buybacks. Repurchases totaled $144.2 billion, an 8.7 percent rise from the previous quarter, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Companies were not spending on equipment, facilities or hiring. Capital expenditures, in fact, decreased 2 percent during the quarter after an encouraging gain of 4.7 percent in the previous quarter, recently released data from the Bureau of Economic Analysis show.

"The continued takeaway is that over 20 percent of the companies are buying their earnings-per-share growth via buybacks," Silverblatt said in a statement. "Reduced share count comes at a time when earnings growth is becoming the key quest for most companies. Share count reduction now appears to be their favorite tool for enhancing earnings."