And actual share repurchases — what companies are really buying back, rather than just announcements — in the second quarter were down 6.8 percent compared to the same period last year, the smallest quarterly buyback total since the third quarter of 2013, according to FactSet.
It's not any better in the third quarter. With almost half of the companies reporting for the third quarter, actual buybacks are down 6 percent from the second quarter, and down 26 percent over the same period last year, according to S&P Dow Jones Indices.
Why would companies slow the pace of announcements and actual buybacks? It's possible they see a better use for the money and are diverting funds elsewhere, but there's not a lot of evidence for that. Capital expenditures are certainly not increasing.
Many companies fund buybacks through free cash flow (some borrow money). "If companies are using a portion of their free cash flow to buy back stock, and there's lower levels of free cash flow, they will likely buy less shares back," Charles Biderman from TrimTabs told me.
That is certainly true, but Howard Silverblatt — who tracks buybacks and cash flow at S&P Dow Jones Indices — said that was unlikely to be the culprit. "Cash flow was not that bad in the second quarter, he told me. "They definitely have the money if they want to use it."
Silverblatt instead suggests that a spike in buyback activity at the end of 2015 and early 2016 has now abated toward more normal levels. "Many companies likely overspent in the early part of the year as prices dropped, and there is less room for additional purchases," Silverblatt said.
Regardless of the cause, buybacks remain a popular way of pleasing shareholders. About 70 percent of the S&P did buybacks last quarter. The biggest buyback spenders were Apple and General Electric, both of which reduced their shares outstanding by several percentage points.
That's not uncommon. Twenty percent of the S&P 500 reduced their year over year share count by more than 5 percent in the second quarter. The overall share count for the S&P 500 was down about 0.7 percent compared to the same period a year ago.
Still,the reduction in buybacks — even from a higher level — bears watching, since buybacks represent a significant source of potential buyers. We've already seen hedge funds pull back, forced to do so by redemptions. The average investing public are turning into passive investors. Buybacks are still a significant source of stock buying.