Think it's a good time to buy low? U.S. corporations don't seem to, at least when it comes to their own shares. A sharp drop in the S...
Think it’s a good time to buy low? U.S. corporations don’t seem to, at least when it comes to their own shares.
A sharp drop in the S&P 500 index — nearly 9 percent so far this year — hasn’t led to a jump in share-buyback announcements, as it did in the month after the 2001 terrorist attacks. “It’s not surprising,” says Charles Biderman, chief executive of TrimTabs Investment Research. “Companies are saying they don’t like the market.”
Companies announced $17.23 billion in new stock buybacks this year through Tuesday’s close, according to TrimTabs. In the month of September 2001, after the attacks, they announced about $54 billion in buybacks, representing nearly a quarter of the year’s total.
The total so far this month is paltry compared with last January and the average monthly total for 2007, a blockbuster year for buybacks. After several years of economic strength, companies last year used part of their healthy cash holdings to reduce the number of outstanding shares through the repurchases.
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Heightened buyback activity can support stock prices. Now economists say the U.S. may be on the verge of a recession. Many financial companies, in particular, are busy raising cash rather than spending it on their own stock.
Howard Silverblatt, senior index analyst for Standard & Poor’s, says buybacks likely peaked during the third quarter of 2007, when companies in the S&P 500 index completed a record $172 billion worth.
David Fried, publisher of The Buyback Letter, says repurchase activity may pick up in coming weeks as companies authorize new programs. “Boards have to have meetings,” he says, “and maybe you see something in the next month.”