It is projected that the upward trend that brought the stock market in the United States to an all-time high this year will have another major driver: companies purchasing back more of their own shares.

According to Reuters, stock buybacks are expected to increase this year after receding last year. Forecasts of more robust corporate earnings, which are projected to provide companies with excess cash, will fuel it. Deutsche Bank said the total amount of buybacks might reach $1 trillion based on an annualized calculation.

After a 3% growth in 2023, the London Stock Exchange Group (LSEG) predicts that S&P 500 firms will see a 10% increase in profits in 2024. Goldman Sachs predicts that buybacks will increase by at least 4% this year. The bank estimates they fell by 15% last year.

Ben Snider, an equities analyst at Goldman Sachs, said: "The fact that now we have earnings growth that clearly bottomed in 2023, interest rates that have declined from their peaks, and improving economic sentiment all point to an increase in buybacks going forward." 

Snider predicted that equities valuations and share prices would benefit from an uptick in corporate demand for stocks.

Buybacks Boosting Stock Performance

There are several ways in which corporate buybacks may improve stock performance. Commonly used criteria for evaluating stocks, such as profits per share, are given a more robust appearance by buybacks, which reduce the number of shares outstanding.

According to Snider, heightened corporate demand for stock may cause prices to rise, while repurchases can protect against more severe volatility if corporations repurchase shares when prices fall.

The analysts at Deutsche Bank recently released research predicting that businesses would have more money for buybacks after paying for essentials like capital expenditures and debt reduction because of higher profits.

"If earnings continue to be robust, buybacks and buyback announcements should also start to pick up and will be an important driver for equities," the analysts said.

The S&P 500 rose 24% in 2023 and is now at record highs after climbing more than 2% in 2024.

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Which Firms Will Repurchase Stock?

Some companies have recently announced plans to repurchase shares. Wells Fargo plans to repurchase more shares in 2024 compared to last year.

Homebuilder Lennar also plans to increase its share buyback plan by up to $5 billion, and defense contractor Northrop Grumman plans to repurchase at least $2 billion this year.

In a note earlier this week, Bank of America's analysts said that stock buybacks by its corporate clients were above seasonal levels for 11 straight weeks. 

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