The pace of company buybacks has not abated. According to Birinyi Associates, buyback authorization of $118.32 billion last month was the strongest for any February on record. Meanwhile, investors pulled over $10 billion out of equity funds in January and February.
Corporate cash hoards are growing but companies are not convinced that there would not be enough consumer demand to justify investment growth. Moreover, with corporate bond yields below forward earnings yield for the S&P 500, more companies see that buying buying back their own stock i the best use of profits.
“Today, Moody’s Seasoned Aaa corporate bond yield is down to an historical low of 3.8%, while the forward earnings yield is at 5.8%,” Yardeni added. “In other words, the Fed’s Stock Valuation Model has been more relevant to corporate finance behavior than investor behavior in the equity market.”
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of TTFS.