2013 has been a defining or record year in many ways, including the wide breadth of stock buybacks companies have undertaken in the marketplace. US companies conducting share repurchase programs began noticeably outperforming their peers early in the post-2008 recovery (there’s a perceptible performance gap from mid-2009).
This relative strength – a combined function of cheap money, reduced float and positive sentimental feedback loop – really took off in earnest in mid-2012. All told the out performance of those companies pursuing buybacks (represented here by the Powershares Buyback Achievers Portfolio, symbol PKW) v. the S&P 500 (SPX) has become enormous: PKW (purple, below) is nearly 58% above it’s 2007 peak, while SPX (blue) is just 19% above.
Much of this performance disparity has occurred across 2013 alone: YTD, PKW has outperformed by some +15%, as reflected by the solid blue line (PKW/SPX). This strength of companies executing >5% share buybacks over a trailing 12-month period (i.e. PKW’s holdings) in 2013 is also reflected in the medium (middle panel) and longer-term (bottom panel) rate-of-change indicators.
Something that has yet to receive much coverage: the rate of change in PKW’s outperformance v. SPX has slowed dramatically in the 4th quarter. Note the blue line (PKW/SPX) is flat since October; the longer-term ROC is essentially flat over the same period; and the medium-term ROC has declined by more than at any period since late 2011.
Has the market hit peak stock buyback? If so, what impact could the plateauing/declining repurchase rate have on the multiple expansion partially responsible for driving equities higher?
Twitter: @andrewunknown and @seeitmarket
Author holds no position in securities mentioned at the time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
