The situation, however, is the opposite for the Dow Jones Industrial 30.  The Dow methodology uses per share data items. So if a company reduces its shares, with the impact being a 10% increase in earnings (as an example) with a corresponding 5% increase in net income, the Dow’s EPS will show the increase in EPS.

Again, the impact would be mostly negated in the S&P 500. This is not to say that buybacks don’t impact stock performance, and therefore the stock level of the indices (and price is in P/E).  It is only to say that the direct impact on the S&P 500 EPS is limited, even as examples on an issue level are becoming easier to find.

This article was written byHoward Silverblatt, Senior Index Analyst, S&P Dow Jones Indices.

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