The Reduction In Buybacks That Is Coming Is Going To Be A Knock-Out Punch

Goldman's buyback desk cautioned Friday that almost 50 US companies have suspended their buyback programs speaking to $190 billion of buybacks or about 25% of the 2019 total. Goldman's chief stock strategist David Kostin said, "more suspensions are likely" along with lower equity prices. In 2020, Goldman forecasts that S&P 500 dividends will fall by 25%, and buybacks will plummet by 50%.

Kostin says, "The decline in share repurchases will have a significant impact on the equity market." He explains that "Corporate buybacks have far exceeded demand from all other investor categories combined since 2010."  And the punchline: "Reduced buyback spending means less downside support for equity prices since fewer firms will step in to repurchase shares if their stock prices fall." The historical connection between buybacks and earnings growth suggests a 30% decline in buybacks. A 50% decrease in buybacks would be consistent with the 8-quarter, 67% top-to-bottom decline during the Global Financial Crisis.