Last week, Lowe’s and AbbVie revealed $34.4 billion in buybacks to please shareholders. This hiked up repurchase announcements over $1 trillion, beating the previous record $781 billion from 2015. On Monday, Johnson & Johnson declared a buyback of $5 million.
Steady economic growth and the corporate tax law from last year led to the record-setting buybacks. In 2017, the Republican tax cut was passed and corporate America stood to make the most of it. The legislation reduced the corporate tax rate to 21% and provided companies with a tax break on foreign profits they bring back to the United States. Thanks to this tax law, companies have greater wealth to spend on buybacks. The research firm, TrimTabs, reports buyback announcements went up 64% in 2018 thus far.
Buybacks are rewarding for Wall Street because they artificially inflate earnings and backstop prices by freeing up a price-insensitive buyer. This year, with ultimately high stocks, companies definitely launched buybacks just because prices were higher.
The market depends on repurchases and stocks take the fall when buybacks decline. Critics and opponents of buybacks think companies ought to concentrate on long-term investments for workers like raising wages and retraining employees.
Buybacks are viewed as costly to the American worker and only serving shareholders, widening income inequality. Investments in job-creating plants and equipment have not skyrocketed like spending on buybacks has. Buybacks have been defended as a method of cash redistribution. Shareholders who receive the cash supposedly give back to the economy and invest in businesses.
Buybacks are forecasted to be in major demand in 2019. Likewise, JPMorgan estimated $800 billion of buybacks next year. High expectations for buybacks could change as finance chiefs become increasingly concerned.
Nearly half (48.6%) of U.S. CFOs are convinced the United States will be in recession by the end of next year. Mainstream economists are anticipating slower growth but not a recession so soon. Ameriprise chief economist, Russell Price, told CNN the U.S. economy will withstand without a recession next year unless the Federal Reserve increases interest rates or the U.S.-China trade war takes a significant turn for the worse.
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