Stock buybacks race to record $132B start as companies snub all warnings

President Joe Biden dislikes them. The taxman is coming after them. And Wall Street strategists warn the boom won’t last. Yet against all odds, corporate America continues to splurge on its own shares — a force that has fueled the new year rally.

In the first month of 2023, announced buybacks more than tripled to $132 billion from a year ago, reaching the highest total ever to start a year, according to data compiled by Birinyi Associates. The planned repurchases surpassed the previous January record, set two years ago, by more than 15%.

There are signs that corporate demand is picking up pace as companies emerge out of an earnings-related blackout. Last week, the Morgan Stanley desk that executes buybacks for clients saw orders increase 5%, according to the firm’s trading team. That, along with retail buying and demand from rules-based quant funds, underpinned the S&P 500’s third weekly gain in four.

At a time when recession risks are mounting amid Federal Reserve tightening, the buying spree may be viewed as a ruthless deployment of cash. To investors who watch companies cut costs on everything from travel and hiring, however, the unbroken commitment to share buybacks offers a dose of comfort amid all the doom forecasts.

It “is encouraging especially given the generally glum views coming out of C-suites,” said Jeff Rubin, director of research at Birinyi. “But the proof will be in the pudding as we will be monitoring very closely whether companies are following through on their announcements and consummating the buyback.”

Chevron’s $75 billion buybacks marked the largest announcement for the month, accounting for more than half of the total. Yet even excluding the energy producer, January’s remaining buyback amount stood at $57 billion, a tally that’s exceeded in only three other years.

Like other big oil companies, Chevron drew criticism on its buyback package from the White House, which suggested the money should be steered toward boosting its output instead of rewarding shareholders. To discourage American firms from stock repurchases, a law imposing a 1% tax on buybacks takes effect this year.