A slowdown in the rate of stock repurchases suggests that companies are beginning to view their own stock as highly valued -- suggesting that buybacks, which have been a significant source of demand, will be less supportive of stock prices moving forward. A silver lining to this cloud is that buybacks are being viewed less enthusiastically as a rational deployment of cash, and that could mean that more incremental cash is allocated to capital expenditures -- investing in growth. This would be a welcome development if true.
Buybacks during the second quarter came in at the lowest level since 2012; in the first seven months of this year, they were down 21 percent from the same period in 2015.
After several years of outperformance, the PowerShares Dynamic Buyback Achievers Portfolio (NYSE:PKW) has been lagging the S&P 500 since late 2015.
Investment implications: Buybacks, which have helped support the stock-market rally, are slowing down -- in the first seven months of 2016, down 21% from the same period last year. The index of “buyback achievers” has been underperforming the S&P 500 index for more than a year. Companies clearly are beginning to view their own shares as getting highly valued -- and this may be altering their calculus about where it makes sense to deploy their funds.