Even record buy-backs haven’t done much for US stocks

In a quarter where US firms have announced plans to spend more money buying back shares than almost any other period in history, the S&P 500 is down 15 per cent, the biggest drop since the 2008 financial crisis. At its worst point this week, the index was within two points of entering a bear market.

The futility can be framed in various ways. Critics of buy-backs will see billions of dollars wasted, while critics of those critics will say share repurchases have never meant very much for equity prices to begin with.

Whatever the lesson, it’s another testament to the downward force in the market. Since the start of October, US companies have earmarked $260 billion for future share purchases, an amount that trails only the second quarter of this year since Birinyi Associates Inc. began tracking the data in 1984.

“The buy-back story on the margin is positive, but at this point it’s been overwhelmed by a change in investor sentiment regarding the outlook for profit and economic growth next year,” said Mark Heppenstall, the chief investment officer at Penn Mutual Asset Management. “It’s a benefit for valuations over time, but in the short term it’s hard to count on that to save the market.”

Birinyi’s tally is at best a rough proxy for repurchases in the here and now — it’s a summary of buy-backs that were announced this quarter, not executed. But while an imperfect guide, announced and completed buy-backs do tend to hew to the same trajectory.

Repurchases have ballooned in recent years, to an extent where corporate appetite for shares dwarfs all other investors as the biggest source of demand for US stocks. During the February rout, the market’s bottom came in a week when Goldman Sachs’s corporate-trading desk saw the busiest buy-back orders ever.

This time, new-record buy-backs haven’t been able to stop equity losses from snowballing. From the September peak, stocks have erased more than $7 trillion in value.