US tax cut leads to share buyback record

The constituents of America's S&P 500 index are expected to spend $650bn buying back their shares this year, which would set a new annual record.

American companies are splurging on their own shares. The constituents of the S&P 500 index are expected to spend $650bn buying back their shares this year, which would set a new annual record. The previous high was in 2007 at the top of the global cycle.

The corporate tax cut from 35% to 21% has given year-on-year earnings growth a hefty fillip to over 20% from underlying profit growth in the mid-single digits.

That has left plenty of spare cash for buybacks to bolster the figures for earnings per share and the stock price. Tech giant Apple, for instance, announced a $100bn buyback programme in early May, a sum that would finance the acquisition of Credit Suisse and UBS, as Sandro Rosa points out in Switzerland's Finanz und Wirtschaft.

The buyback splurge will provide some support for a market beset by historically high valuations and steadily rising interest rates. But it probably won't last very long, says Rosa.

Companies are finally beginning to invest again after sitting on their hands for years, so in the next few months spare cash is increasingly likely to go towards expanding production capacity and growing businesses. Both actual and planned investment are on the rise. What's more, over the past several years American companies have borrowed a great deal of money to finance buybacks, so further impetus from this source is unlikely.

Recommended

Stockmarkets have a spring in their step
Stockmarkets

Stockmarkets have a spring in their step

Global stockmarkets have been basking in the post-Covid economic recovery as GDP, retail sales and manufacturing are all on the way back up.
23 Apr 2021
Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
Big Tech is becoming Big Brother: a leviathan out of control
Tech stocks

Big Tech is becoming Big Brother: a leviathan out of control

With mounting influence over what we do, see, and even think, the technology giants are changing the world. It may not be long before the sector eclip…
7 May 2021
Troy's Gabrielle Boyle: for global companies, sustainability is just good business
Investment strategy

Troy's Gabrielle Boyle: for global companies, sustainability is just good business

Merryn talks to to Gabrielle Boyle of Troy Asset Management about the top quality global companies in her portfolio, and why those firms that invest i…
7 May 2021

Most Popular

Big Tech on steroids: why the 2020s will be the “decade of the DAO”
Bitcoin & crypto

Big Tech on steroids: why the 2020s will be the “decade of the DAO”

Big tech companies have transformed the way we live our lives. But if you thought they were disruptive, you haven’t seen anything yet. As Dominic Fris…
6 May 2021
Could you end up paying inheritance tax on your family home?
Inheritance tax

Could you end up paying inheritance tax on your family home?

The value of the average UK home has risen by 53% since April 2009, but the inheritance tax threshold has remained static. And that means more people …
7 May 2021
Cryptocurrency ether has hit an all-time high. Why? And will the bull market last?
Bitcoin & crypto

Cryptocurrency ether has hit an all-time high. Why? And will the bull market last?

Cryptocurrency ether – the world’s largest cryptocurrency by market cap after bitcoin – hit an all-time high this week. Saloni Sardana looks at what’s…
5 May 2021