Stocks could get a lift from this huge buying force in the fourth quarter
Buybacks are expected to come in full force in the fourth quarter , poised to give the volatile stock market a big boost. Corporations are already on pace to repurchase more than $1.1 trillion of U.S. stock this year, which will go down as the most ever in the history of the stock market, according to data from Goldman Sachs . There have been signs of heightened activity as of late, the Wall Street firm said. “Last week was a VERY active week on our buyback desk despite still being in blackout period,” John Flood, a trader at Goldman Sachs , said in a note. Publicly traded companies have a policy that restricts trading in their own share s beginning two weeks prior to the quarter end, through 48 hours after earnings are publicly released. Most of the current buybacks are executed through Rule 10b5-1, which allows companies to set up a predetermined plan to buy back stock . Companies are trying to take advantage of lower valuations amid 2022’s sell-off. The S & P 500 is down 20% this year as investors worried that the Federal Reserve’s aggressive rate hikes could tip the economy into a recession and take down profits. Companies could also be rushing to buy back share s to avoid the new 1% excise tax on buybacks in the Inflation Reduction Act of 2022, effective for taxable years beginning after December 31, 2022. “I think it will be heavy quarter , as we see Q1,’23 purchases accelerated into Q4 to avoid the new tax, and cover more employee options,” Howard Silverblatt, S & P’s senior index analyst, told CNBC. Buybacks have been a popular way for companies to return cash to share holders, competing with dividends. Corporate America also uses share repurchases to improve earnings per share , since buybacks reduce the share count. Repurchases took a hit during the depth of the pandemic as companies focused on conserving cash, cutting costs and managing liquidity risk stemming from the crisis.