JP Morgan: S&P 500 could buy back $800B in stock this year

Companies in the Standard & Poor’s 500 index are expected to buy back as much as $800 billion in shares of their own stock this year partly as a result of the GOP’s tax-reform plan, JP Morgan said Friday.

In an analysis first reported by MarketWatch, the financial services firm estimated that companies will return hundreds of billions of dollars to shareholders this year as companies save money on taxes, repatriate overseas funds and enjoy strong earnings across the U.S.

The analysis far exceeds the $530 billion in stock buybacks the firm recorded in 2017, MarketWatch notes. And according to analysts, this year’s number could increase further under the right conditions.

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“There is room for further upside to our buyback estimates if companies increase gross payout ratios to levels similar to late last cycle when companies returned >100% of profits to shareholders (vs. 83% now),” said a note accompanying the estimate. “Corporates tend to accelerate buyback programs during market selloffs.”

Democrats, however, have pointed to the rising stock buybacks as proof the Republican tax plan benefited wealthier Americans and corporations instead of more employees.

“Why is that so significant? Because share buybacks don’t help the average worker,” Senate Minority Leader Charles Schumer (D-N.Y.) said last month.

“They inflate the value of a company’s stock, which primarily benefits shareholders, not workers. It benefits corporate executives who are compensated with corporate stock, not workers who are paid by wages and benefits,” he added.

Last month, technology conglomerate Cisco announced it would be one of the companies buying back shares from shareholders.

“There’s a great deal of confidence on a global basis, probably a lot more than we have seen for a very long time,” Cisco’s chief executive, Chuck Robbins, told the Financial Times.

Proponents of the tax plan, however, point to companies bringing money back from overseas as a positive benefit of the plan. 

“To the extent that there are share buybacks, that’s capital that’s recycled back into the economy,” Treasury Secretary Steven Mnuchin told the Senate Finance Committee. “It doesn’t sit in banks.”

Republicans have also pointed to multiple companies that have issued bonuses or raises following tax reform’s passage.