Corporate America (SPY, $289.34) Splurges $384 billion on Share Buybacks, While Capital Spending Remains Healthy

During the first half of 2018, S&P 500 companies spent $384 billion on buying back shares from shareholders, according to a Goldman Sachs report. That marks a whopping +48% increase since last year.

Apple went ahead with $45 billion worth of buybacks during the first half of 2018, which is triple the amount its spent during the same time period last year. Other companies with substantial share repurchase increases includes Amgen, Cisco, AbbVie and Oracle (as mentioned in the Goldman Sachs report). 

For the full year 2018, share buyback authorizations among all US companies will exceed $1 trillion for the first time ever (according to Goldman Sachs projections). Share buybacks lower the number of outstanding shares of a company, thereby potentially pushing up the earnings per share metric – which in turn usually boost stock prices. Buybacks also indicate a firm’s healthy cash position, and therefore tend to bolster its stock price at least for the near-term.

Goldman Sachs estimated that buybacks are garnering the largest share of cash spending by S&P 500 firms - a departure from 19 out of the past 20 years where capital spending accounted for the biggest share.

Business spending still increased in the first half of 2018 – at  19% from last year – albeit at a slower rate compared to buybacks. Goldman Sachs predicts that capital spending is on pace for the fastest growth in at least 25 years.