Tags: Companies | Stock | Rallies | Buybacks

Companies Fueling Stock Rallies Via Buybacks

Wednesday, 23 Nov 2011 07:57 AM

The stock market has been volatile this year but all in all, it has been bumping up into positive territory.

That's due to returning investor confidence in corporate America and in the U.S. economy, right?

Not exactly.

Companies have been buying back their own stocks in droves this year at a time when retail investors have been yanking their money out of mutual funds that invest in stocks.

This year could be the third-biggest year ever for share buybacks, historically a sign of uncertainty, CNBC reports.

The two biggest years for buybacks were in 2006 and 2007, which preceded the financial crisis.

During the recently completed earnings season, buybacks averaged $2.1 billion a day, with $28.5 billion in buybacks for November as of last week, 1.7 times higher than the $16.3 billion in corporate selling, according to TrimTabs.

"Corporate America is the only real source of buying power in this market," Charles Biderman, TrimTabs CEO, writes in a market note, CNBC adds.

Retail investors, it seems, are staying on the sidelines.

"The retail investor is just fed up," says Brian Gendreau, market strategist with the Financial Network, an El Segundo, Calif.-based independent broker-dealer.

The U.S. economy remains officially in recovery mode but is growing at an uncomfortably slow pace.

The government recently adjusted its third-quarter gross domestic product growth figures, knocking them down to 2 percent growth from 2.5 percent.

Don't expect retailers to jump into the market and start buying wildly on such data, experts add.

"Markets are looking for clarity, and you didn’t get that from the super-committee," says Steven Ricchiuto, chief economist at Mizuho Securities, referring to the congressional committee that failed to agree on spending cuts, according to the Associated Press.

"There's no reason to believe the economy is going to get stronger."

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