Rodrigo Campos New York
IT IS a toss-up whether the market found a bottom last week, but bulls could find some support as corporations, mostly on the sidelines as the market tumbled, step up their stock purchases in the coming weeks.
The equities sell-off had its climax on Wednesday afternoon when the Standard & Poor’s 500 (S&P) index set its low for the week as concern over the global economy, conflicting views on the timing of the next policy move by the Federal Reserve, and headlines about the Ebola virus made investors even more skittish.
One factor that could have accelerated the decline was that many US companies were out of the corporate repurchase market as they headed into earnings season.
“We are now in a blackout period so companies have been precluded from conducting tactical buy-back activity that has supported the equity market during sell-offs in the recent past,” said Goldman Sachs earlier last week.
October has been particularly quiet for buy-backs by US firms, with about $1.7 billion (R19bn) in stock repurchases announced or completed so far this month, compared with about $250bn during the first nine months of the year, according to Thomson Reuters data.
The recent market decline could give many companies the opportunity to buy back stock at bargain prices. On Thursday, 605 New York Stock Exchange issues hit 52-week lows, the most for a single day in three years, while just 21 hit 52-week highs. The number of lows fell to 153 on Friday.
“If you truly believe your prospects are bright and you’d like to return capital to long-term holders of your stock, it is an excellent time to buy back shares,” said Kim Forrest, a senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
“It would seem stupid to let this opportunity pass.”
November buy-backs would by no means be a novelty. Goldman Sachs data show that in the past seven years excluding 2008 November accounted for about 14 percent of the yearly buy-back activity, the most for any month.
The market is entering the busiest part of earnings season, with results due from 128 S&P 500 companies, including six Dow components.
This week would be “one of the busiest we have, so that [will] unlock a lot of buy-back programmes after that’s over”, said Art Hogan, the chief market strategist at Wunderlich Securities.
Fundamentals are also on the bulls’ side.
Earnings for the S&P 500 are now forecast to have risen 6.9 percent in the third quarter, up from a 6.5 percent estimate on October 10. – Reuters