Stock buybacks are set to hit a record $1 trillion this year, even as presidential candidates try to restrict them

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Corporate buyback activity in the first half of 2019 suggests investors could see more than $1 trillion in S&P 500 repurchases this year, according to Bank of America Merrill Lynch.
Financial firms have bought back the most stock so far this year, and are expected to authorize more repurchases after many received the Fed’s approval last week, BAML said.
Stock buybacks exacerbate wealth inequality and inflate equity prices, critics say.
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Big tech companies like stock buybacks. Banks like them too. So do retailers.

In fact, corporations enjoy repurchasing their own shares so much that they’re on track to break the $1 trillion threshold, marking another record. And that’s happening with stock prices at record highs.

The hotly debated practice has for months been subject to the ire of Democratic presidential candidates, with Sens. Elizabeth Warren and Bernie Sanders among the most notable critics. They argue that buybacks exacerbate wealth inequality in the US and artificially inflates stock prices. And they have plans to rein them in.

But that rhetoric hasn’t gotten in the way of companies authorizing big buyback programs that will likely send them above the $1 trillion level for the year, Bank of America Merrill Lynch strategists said in a report.

Repurchases in the first half of this year rose 18% since the same time in 2018, to $43 billion, the firm’s strategists led by Jill Carey Hall said. That suggests they could breach the hallowed 13-digit mark by year-end, BAML said.

S&P 500 companies’ buybacks totaled a record $806.4 billion last year, according to S&P Global.

Bank of America Merrill Lynch

On the sector level, financials have been the biggest contributors to the total buyback landscape so far this year with 35% of all share repurchases, BAML found.

"We expect cash return from the sector to ramp up further following better-than-expected announced payout results under CCAR," the firm’s equity and quant strategists found, referring to the Federal Reserve’s stress tests.

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To name a few, JPMorgan said last week it would buy back $29.4 billion in shares and hike its dividend. The beleagured Wells Fargo said it planned to buy back $23.1 billion over the next year. Citi planned to buy back $17.1 billion in stock next year.

Client flows into financial stocks have recently been "chiefly" buyback-driven, BAML said.

After financial services, technology has been the second-largest contributor to buybacks so far this year, executing 27% of total repurchases. In total, buybacks jumped 6% year-over-year in the second quarter.

Corporations in the US ramped up share repurchases and handsomely rewarded investors in the wake of the Trump Administration’s late-2017 tax cuts. The Federal Reserve last September found there was little evidence of companies using that cash for capital expenditures, but rather to boost their buyback programs.

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