Wall Street needs a reason to buy stocks. Is this it?
By Julia Horowitz, CNN Business
Stocks have been volatile in recent weeks, notching their worst start to the year since 1939. Between the war in Ukraine, decades-high inflation and recession fears, it’s been difficult for investors to convince themselves to put more money into the market.
Yet Goldman Sachs has a reminder for Wall Street: Hundreds of billions of dollars in support that could help ease angst is on the way.
What’s happening: Ahead of earnings season, companies faced restrictions on repurchasing their own shares, weighing on the largest source of demand for US stocks. Now, with many companies having reported earnings, they can enter full-on buying mode again.
That could unleash a flood of money into the market. American companies have authorized more than $400 billion in share buybacks so far this year, according to Goldman Sachs. That’s 22% more than the record level seen this time last year.
Though the economic environment has become more challenging, companies are still growing earnings at a healthy clip and amassing large reserves that can be tapped to give rewards to shareholders.
“Solid earnings growth (+5%) and large cash balances among S&P 500 firms will support continued buyback growth,” analysts at Goldman Sachs said.
The firm predicts that S&P 500 buybacks will grow by 12% this year.
On earnings calls so far this quarter, buybacks have been a hot topic, especially from tech companies. Apple authorized an additional $90 billion in share repurchases “given the continued confidence we have in our business now and into the future.” Google’s Alphabet approved another $70 billion in buybacks.
The oil sector, flush thanks to the surge in energy prices, is also ramping up plans to buy back shares. ExxonMobil tripled the size of its buyback program last week. It now expects to repurchase $30 billion in stock through 2023. BP touted an extra $2.5 billion in buybacks on Tuesday. (More on BP and oil industry earnings below.)
That doesn’t mean all these repurchases will be executed. JPMorgan Chase, which announced a fresh $30 billion share buyback program last month, emphasized that it’s not locked in.
“It’s just a signal that we want to have that capacity and that flexibility,” said Jeremy Barnum, the company’s chief financial officer. “But it doesn’t really say that much about how much we’re actually planning to do in the near term.”
Buybacks are politically controversial. US President Joe Biden wants to limit them and encourage companies to share their wealth with other stakeholders, such as employees.
But for investors, the ongoing buyback spree could provide a boost, propping up share prices and indicating that companies generally feel good about the economic outlook, despite a long list of unknowns.
BP profit more than doubles on ‘exceptional’ oil trading
Ditching its business in Russia was a costly move for BP. But the company isn’t sweating it as it rakes in massive profits from sky-high energy prices.
The latest: BP said Tuesday that it took a hit of more than $24 billion from its February decision to offload its stake of nearly 20% in state oil giant Rosneft and abandon three joint ventures with Russia’s biggest oil producer.
Even so, underlying profits in the first quarter soared to $6.2 billion from $2.6 billion in the same period last year, boosted by “exceptional oil and gas trading” conditions, my CNN Business colleague Mark Thompson reports.
Remember: Oil prices have shot up by nearly 40% since the start of 2022, with benchmark Brent crude trading well above $100 a barrel. Prices for natural gas have also surged. The gains have been driven by fears of a global supply shock following Russia’s invasion of Ukraine.
Shareholders are in line for a windfall. In addition to pledging to buy back shares, BP boosted its dividend. But opposition politicians in the United Kingdom used the results to renew calls for a one-off tax on excess profits generated by companies producing oil and gas in the North Sea.
They want the proceeds to help fund additional relief for households who are struggling to cover the rising costs of fuel and heating in the worst cost-of-living crisis in decades.
“With so many people struggling to pay their energy bills, we should have a windfall tax on oil and gas companies in the North Sea, who have made more profit than they were expecting,” Keir Starmer, leader of the Labour Party, told the BBC.
Prime Minister Boris Johnson’s government has so far resisted those calls.
Not just BP: Last week, Exxon said its quarterly profit doubled despite taking a $3.4 billion charge for exiting its Russia business. Chevron’s profit more than tripled from a year earlier.
Citi trader’s mistake triggers flash crash
We’ve all had a case of the Mondays at work before. Still, making a mistake that triggers a damaging flash crash in financial markets is likely to make for an unusually bad day.
When European shares suddenly fell on Monday — at one point sending Sweden’s main stock index down 8% — investors raced to figure out what was behind the brief but sharp move.
The answer: One trader at Citigroup.
“On Monday, one of our traders made an error when inputting a transaction,” the bank said in a statement. “Within minutes, we identified the error and corrected it.”
A spokesperson at Nasdaq Stockholm told Bloomberg that the problem wasn’t caused by a technical glitch or an outside attack. No trades will be canceled as a result of the incident, they added.
“It is very clear to us that the cause of this move in the market is a very substantial transaction made by a market participant,” they said.
Step back: Exchanges try to guard against accidental trades, but sometimes their efforts can still fall short. The quick sell-off in Europe on Monday was likely made worse by light trading volume, since it was a bank holiday in the United Kingdom.
Up next
Hilton, Marathon Petroleum and Pfizer report results before US markets open. Airbnb, Lyft and Starbucks follow after the close.
Also today: Are labor shortages letting up at all? US job openings for March, which arrive at 10 a.m. ET, will provide some clues.
Coming tomorrow: All eyes are on the Federal Reserve’s May meeting.
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