And maybe the major reason are stock buybacks. It so happens that prior to the Great Recession there was also a glut of companies buying their stock. Remember Bear Stearns, Lehman Brothers, Merrill Lynch? Where are they now?
The money being spent to buy back stock plus paying dividends works out to just about 95% of S&P 500 index's earnings. This year, companies plan to buy $104.3 billion of their own stock. This is a record figure and it is happening in the face of 10-year Treasury yields holding below 2.1 percent, economic growth trailing forecasts and earnings estimates deteriorating. Companies are increasing buybacks with valuations reaching five-year highs just as profits are forecast to post the first back-to-back quarterly contractions since 2009. Plus, the S&P 500 trades at 18.9 times earnings, compared with an average of 16.9 since 1936, data compiled by Bloomberg and S&P show.
When will we ever learn?
No comments:
Post a Comment