Bank of America Strategists Say U.S. Share Buybacks Fell to a Five-Year Low

(Bloomberg) -- U.S. stock buybacks dropped to the lowest in five years in the first quarter, providing evidence of a reversal in the multi-decade bullish trend for equities, according to strategists at Bank of America Corp.

While buybacks typically slow at the end of each quarter ahead of the earnings season, spending by S&P 500 firms on share repurchases as a percentage of market capitalization fell to its lowest since the first quarter of 2017, strategists led by Jill Carey Hall wrote in a note. The dollar amount of the buybacks was still higher than during the other first quarters “post-crisis,” they said.

Companies also announced fewer plans for future stock buybacks, the strategists said, with announcements as a percentage of market value coming in 50% below the pre-Covid five-year average.

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The trend is a stark reversal from the fourth quarter, when oil and gas producers drove a surge in buybacks, according to data from S&P Dow Jones Indices, although that was before energy prices hit their highest in over a decade. Russia's invasion of Ukraine in February has driven commodity prices to historic highs, threatening to crimp corporate profit margins.

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BofA strategists also said they saw a greater case for dividends to outpace stock repurchases in 2022 “amid political risks to buybacks, a rising cost of debt (fewer levered buybacks) and elevated valuations versus rising demand for dividend income.”