Stock market salvation: It's all about the buybacks

If the stock market isn't recovering under its own steam, expect corporate buybacks to help.

Goldman Sachs equity analysts say the corporate buyer has been missing during the downturn and should return at the end of the month. In a note, they said they expect the S&P 500 to bottom between 1,850 and 1,890 on a closing basis, before rallying to their year-end target of 2,050.

Helping that anticipated rally should be the fact that corporations do a big chunk of their buying for buyback programs in November and December. Most companies cannot buy stock in open market purchases in the five weeks prior to reporting earnings, and the start of that period coincided with the S&P 500 peak on Sept. 18, they added.

The stock market selloff, which took the S&P down 9.5 percent on an intraday basis, coincided with the absence of those corporate buyers.

S&P 500 companies should be able to return in force by the end of October, when most will have finished reporting earnings. Since 2007, companies have done an average 25 percent of their buybacks in November and December, the analysts said.

S&P 500 companies bought back $116.2 billion in stock in the second quarter, down from $159.3 billion in the first quarter and $118 billion in the second quarter last year, according to Standard and Poor's data.

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The Goldman analysts said earnings reporting months have seen 1.2 percent higher realized volatility than other months, while corporations are sidelined. The analysts said an S&P pullback to 1,870 would be similar to 13 pullbacks since 2009, in terms of size and duration, with the S&P 500 losing 5 percent plus.

"We continue to forecast S&P 500 EPS will grow by 8 percent in 2015 as U.S. real GDP expands above 3 percent. Two-thirds of S&P 500 sales are derived domestically, and we estimate only a modest earnings impact from slower foreign growth, a strengthening USD (dollar), and lower oil. We expect steady U.S. growth and low interest rates will keep valuations stable, meaning the market level should rise in line with earnings," the analysts wrote.

Buybacks have been aiding this earnings growth.

"Twenty-five percent of the (S&P 500) companies are going to have at least a 4 percent year-over-year impact on their EPS, aided by share count reduction," said Howard Silverblatt, S&P indices analyst. He said that third-quarter forecast compares with 23 percent of companies in the second quarter.

For the 12 months ending June 30, buybacks totaled $533 billion, up from $421 billion a year earlier. The record quarter for buybacks was $172 billion in Q3, 2007.

"The 12-month total shareholder return, which is buyback and dividends, was $866 billion for the 12 months ending in June. That was an all-time record," said Silverblatt. "As long as we don't tank in buybacks—and it doesn't look like we will—we're going to get another shareholder return record.

Separately, Goldman cut its forecast for the 10-year to yield 2.5 percent at year end.

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—By CNBC's Patti Domm.