Post by account_disabled on Feb 24, 2024 23:00:41 GMT -6
Which a triple-B company could afford today, such a buyback would dilute earnings per share (I should stress that rising earnings per share is not the final word on whether a buyback is a good idea , but it is a relevant consideration and is satisfactorily quantifiable). But the fact that rates affect the economics of debt-financed buybacks does not, in and of itself, mean that at dramatically higher rates significantly fewer buybacks will occur. The sensitivity of buyback decisions to economic reality and the proportion of buybacks that are financed with debt could have a mitigating influence. Regarding the first point, while it is difficult to understand why a company would do a buyback that did not increase earnings per share at all (except, perhaps, to offset the dilution of stock compensation we know that buybacks are at least less somewhat insensitive.
Economic reality because we know that they are procyclical. More buybacks occur when stocks are more expensive. Companies are not perfectly economically rational about buybacks, so the Job Function Email Database impact of higher debt costs on buybacks could be smaller than you might expect. Regarding the second point, it is important to note that many buybacks are made by companies that generate so much cash that the costs of debt are irrelevant. In the latest quarter, Microsoft, Apple, Alphabet, Exxon and Chevron (all big cash generators) accounted for more than a quarter of all buybacks in the S&P 500, according to data from S&P Dow Jones Indices. Overall, I think we should temper our fears that higher rates will drag down the market by discouraging buybacks. But to the extent that buybacks are believed to support stock prices (and there is debate about this), higher rates are likely to further divide the market between the haves and the have-nots.
The cash-rich will be able to sustain their buybacks and, potentially, their share prices, while the have-nots who have relied on debt financing will have to give them up. Normalization of the labor market If the economy lands softly, will we know when it happens? Has it already happened? Growth has clearly been maintained; However, about inflation it is more difficult to say. Core inflation measures are lagging. Some already argue that, after taking into account the slow transfer of market rents to official indices, inflation is currently close to 2 percent and we are in for a soft landing. We just can't see it yet. If inflation is too slow an indicator, the next place to look is the labor market. When labor demand exceeds supply, it irritates the Federal Reserve, keeping it focused on supposedly labor-sensitive inflation data, such as non-housing utilities, which spiked in August.
Economic reality because we know that they are procyclical. More buybacks occur when stocks are more expensive. Companies are not perfectly economically rational about buybacks, so the Job Function Email Database impact of higher debt costs on buybacks could be smaller than you might expect. Regarding the second point, it is important to note that many buybacks are made by companies that generate so much cash that the costs of debt are irrelevant. In the latest quarter, Microsoft, Apple, Alphabet, Exxon and Chevron (all big cash generators) accounted for more than a quarter of all buybacks in the S&P 500, according to data from S&P Dow Jones Indices. Overall, I think we should temper our fears that higher rates will drag down the market by discouraging buybacks. But to the extent that buybacks are believed to support stock prices (and there is debate about this), higher rates are likely to further divide the market between the haves and the have-nots.
The cash-rich will be able to sustain their buybacks and, potentially, their share prices, while the have-nots who have relied on debt financing will have to give them up. Normalization of the labor market If the economy lands softly, will we know when it happens? Has it already happened? Growth has clearly been maintained; However, about inflation it is more difficult to say. Core inflation measures are lagging. Some already argue that, after taking into account the slow transfer of market rents to official indices, inflation is currently close to 2 percent and we are in for a soft landing. We just can't see it yet. If inflation is too slow an indicator, the next place to look is the labor market. When labor demand exceeds supply, it irritates the Federal Reserve, keeping it focused on supposedly labor-sensitive inflation data, such as non-housing utilities, which spiked in August.