Above the Fold

Back to the Buyback — Should We Be Concerned?

After a brief pause last year, corporate share buybacks are once again surging to record levels. Buybacks hit a major lull in the second quarter of 2020, dropping to just $89 billion as the pandemic forced many businesses to hold onto their cash. Share repurchases have since grown each quarter, approaching nearly $200 billion in Q2 2021. 

The popular, yet controversial strategy allows companies to use their own earnings cash to buy their own shares in the open market. The publicly traded company can then remove those shares from the total amount outstanding, effectively increasing its net earnings per share, driving its stock price higher. Critics believe that rampant use of stock buyback programs may not be in the best interest of investors in the long term as cash could be better put to use (mergers, expansion, marketing, etc.), instead of simply buying back shares to reduce float.

The S&P 500’s 25% surge in 2021 was certainly helped, at least in part, by share buyback programs. In some cases, repurchase plans make sense, especially when a company’s stock has fallen out of favor with the broad market and executives see true value in share prices. That argument becomes harder to make when a stock is at or near all-time highs. 

Three Things 

1. Central Banks Take Spotlight This Week – Domestically, the Federal Reserve (Fed) will give its decision on interest rates and strategy at the end of its two-day meeting Wednesday. The Fed is expected to accelerate its bond purchase program and likely cue up investors for a sooner-than-expected rate hike. Investors will also hear monetary policy announcements from the European Central Bank, the Bank of Japan and the Bank of England this week. 
2. This Tech Giant Won’t Use Inflation as a Wage Barometer – After reporting record-breaking profits for the fifth quarter in a row, Google parent company Alphabet reportedly has no plans to pass along the wealth. According to CNBC, Alphabet’s VP of compensation, Frank Wagner, told employees that the company has no plans to adjust salaries for recent jumps in inflation. Alphabet will continue to pay workers based on performance rather than bump compensation up across the board.    
3. So What Happens When Digital Vaccine Passports Fail? – The Brazilian health ministry was hacked last Friday. Attackers took down a multitude of systems including one which contained critical and personal information used by the national immunization program and another used to issue digital vaccination certificates. The country is now unable to verify data for many travelers and had to delay implementing new health requirements it was going to impose for those entering the country. The brazen digital assault does raise concerns around the safety of our data and is a reminder of how vulnerable information can be in the modern age. 

Did You Know? 

Will Santa Come to Town for Investors This Year?

Now that we are roughly half-way through the last month of a very profitable 2021, investors are looking to the last week of the year for clues to the so-called “Santa Claus rally.” While some only focus on the returns of the week between Christmas and New Year’s Day, most statistics cite the last two weeks of December and the first two trading days of the new year. More than two-thirds of this period has been profitable for investors for the last 71 years. In fact, December as a whole has delivered positive returns in 53 of 70 years since 1950, with an average return overall of 1.39%.