US companies buy back fewer shares amid recession fears

Firms in the S&P 500 index bought back just over $200 billion of their own shares during the third quarter, marking the slowest quarter for buybacks since the middle of last year and putting them about 25% below levels observed in late 2021 and early 2022, according to data compiled by Bloomberg.

The pullback undermines what had been a major force driving the stock market over the past two years as corporations used rising profits to buy back their own shares. If the trend continues, it would create another headwind for the S&P 500, which is still down 16% this year, even after recovering from its mid-October low.

“Buybacks can be a major driver of market returns, especially in the large-cap sector“, said Phil Blancatoexecutive director of Ladenberg Thalmann Asset Management. “This would be another component of weaker returns for 2023″.

The communication services industry was one of the industries that declined the most in share repurchases during the third quarter. Consumer discretionary and technology companies including Amazon.com Inc. and Microsoft Corp. also reduced their buybacks, offsetting an increase in the energy sector.

The development reflects growing anxiety that growth will stall due to the most aggressive Federal Reserve rate hikes since the 1980s. It also signals an effort to prioritize spending as businesses seek to protect interest payments. dividends, which increased 9% to nearly $600 billion over the past year.

Buybacks are a much less disruptive cost-cutting cost than, say, the downsizing that has been seen in the market.

“When you’re facing some kind of storm you haven’t seen before, you don’t want to use up all your fuel before you can see the shoreline.” said. “When we have a better view of the coast, we will make the right decisions.“, said Gary FriedmannCEO of luxury furniture maker RH.