BMGT 440 Lecture 2: Why Stock Market Buybacks Should Make Investors Nervous
11 Oct 2018
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Why stock market buybacks should make investors nervous. We"re more than nine years into a bull market, and it"s no secret that stocks are expensive. The shiller price/earnings ratio, which compares companies" share prices with their inflation-adjusted 10-year earnings average, is at 31, well above the historical median of 16 a sign that future returns will be sluggish. Combine that with simmering worries about trade wars and inflation, and you get a climate in which fewer investors are clicking the buy button. Yet there"s one group purchasing company shares with gusto: the companies themselves. As the impact of new tax cuts circulates through corporate balance sheets, businesses are getting an infusion of cash, and much of the windfall is going toward buying back stock. J. p. morgan estimates that repurchases in 2018 will jump 51% from last year"s mark, to billion, which would be a single-year record.
