Beyond earnings, buybacks to give market support

Fri Oct 17, 2014 9:34pm EDT
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By Rodrigo Campos

NEW YORK (Reuters) - It is a tossup whether the market found a bottom this week, but bulls could find some support as corporations, mostly on the sidelines as the market tumbled, step up their stock purchases in the coming weeks.

The equities selloff had its climax on Wednesday afternoon when the S&P 500 set its low for the week as concern over the global economy, conflicting views on the timing of the next policy move by the Federal Reserve, and headlines about the Ebola virus made investors even more skittish.

One factor that could have accelerated the decline was that many U.S. companies were out of the corporate repurchase market as they headed into earnings season.

"We are now in a blackout period so companies have been precluded from conducting tactical buyback activity that has supported the equity market during sell-offs in the recent past," said Goldman Sachs in a note earlier this week.

October has been particularly quiet for buybacks by U.S. companies, with about $1.7 billion in stock repurchases announced or completed so far this month, compared with about $250 billion during the first nine months of the year, according to Thomson Reuters data.

The recent market decline could give many companies the opportunity to buy back stock at bargain prices. On Thursday, 605 New York Stock Exchange issues hit 52-week lows, the most for a single day in three years, while just 21 hit 52-week highs. The number of lows fell to 153 on Friday.

"If you truly believe your prospects are bright and you'd like to return capital to long term holders of your stock, it is an excellent time to buy back shares," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

"It would seem stupid to let this opportunity pass."   Continued...

A man carries an umbrella in the rain as he passes the New York Stock Exchange October 16, 2014.  REUTERS/Brendan McDermid