(Bloomberg) -- It’s long been suggested that the stock market is vulnerable during earnings season because its biggest allies, companies themselves, are sidelined.
And while volumes have been running below average in the first two weeks of the latest period, it doesn’t look like a blackout in corporate stock buybacks is to blame, at least going by one bank’s data.
Repurchases by Bank of America Corp.’s corporate clients rose to a four-year high last week, the firm’s equity strategists led by Jill Carey Hall and Savita Subramanian wrote in a note Tuesday.
Financial firm buybacks were particularly strong, hitting levels not seen since BofA began tracking the data in 2009. One reason is that major lenders already finished reporting and came out of the blackout first. Perhaps not coincidentally, the KBW Bank Index posted its best week relative to the market in a month.
The BofA data may offer hope for investors who’ve seen tech darlings battered this week amid disappointing results from the likes of Alphabet Inc. Computer and software makers have announced $84 billion worth of buybacks this year, more than triple the total planned at this time of 2017, data compiled by Birinyi Associates Inc. showed.
“As we move through this peak of earnings, buybacks may begin to return next week,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab in Boston, said in an interview on Bloomberg Television. “We might see that stability coming back to the market.”
Since the start of the year, BofA’s corporate clients have snapped up more than $20 billion of their own shares, an 88 percent increase from a year ago. At this rate and based on BofA’s market share in overall buyback executions, the firm’s strategists forecast total repurchases from S&P 500 companies would hit a record $850 billion in 2018.
Last week’s surge in buybacks may come as a surprise to many who anticipated the market would lose support during the blackout period, Goldman Sachs strategist David Kostin warned this month that market volatility is likely to stay elevated because April is typically the second-weakest month of the calendar year for buybacks.
Companies normally shy away from discretionary stock buybacks for about five weeks before reporting earnings through the 48 hours that follow in order to comply with regulations. At the same time, preset buyback programs aren’t subject to blackout.
Whatever arrangement was behind last week’s buybacks, it’s good news for a market where the earnings season has become another source of volatility. The S&P 500 fell more than 1 percent Tuesday after comments from Caterpillar Inc. over peaking profit sparked a selloff in stocks. Tech stocks fell for a sixth day Wednesday, the longest retreat in a year, as companies from Google to chipmakers stoked concern over a potential slowdown.
Corporate demand has dwarfed almost all other investors in keeping the bull market afloat and the trend seems to be continuing. Last week, hedge funds and private clients were net sellers, BofA’s client flows showed. While institutional investors such as pensions scooped up equities for a second week, the amount of buying was about half that seen from companies.
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