Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis-Investors look to near $2 trillion corporate cash hoard to buoy stocks

Stock MarketsJul 21, 2021 01:27PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

By Lewis Krauskopf

NEW YORK (Reuters) - Investors are looking to a mounting pile of cash at U.S. companies to provide support for the stock market in coming months, as executives announce plans to increase share buybacks, boost dividends or pour money back into their businesses.

Cash on the balance sheets of S&P 500 companies has swelled to a record $1.9 trillion, compared to $1.5 trillion before the pandemic crisis in early 2020, according to Keith Lerner, chief market strategist at Truist Advisory Services.

The cash hoard likely will be a key factor in investors’ calculus as second-quarter earnings season hits full swing while market participants gauge how equities respond to worries over slowing growth and a COVID-19 resurgence that sparked a rush to safe-haven Treasuries in recent days.

High corporate cash balances are “a nice, subtle form of market support," said Michael Purves, chief executive officer at Tallbacken Capital Advisors. “With all the talk about markets getting ahead of themselves and aggressive valuations, this provides market support into 2022 and 2023.”

Large amounts of cash give companies flexibility to take potentially share-supportive measures, including facilitating buybacks, which boost earnings per share. Companies may also raise dividends, making their stocks more attractive to income-seeking investors amid falling Treasury yields.

A stock basket created by Goldman Sachs (NYSE:GS) of companies returning a comparatively large amount of cash to shareholders through buybacks or dividends had outperformed the S&P 500 in 2021 by 5% as of last Thursday. A separate basket of companies with relatively high capital spending or research and development expenses outperformed by 2%.

"Investors have rewarded all uses of cash recently," Goldman said in a report last week. The investment bank's strategists projected buybacks will increase by 35% this year.

The focus on cash comes as investors try to read conflicting market signals that have emerged over the last few weeks.

Though stocks stand near records, Treasury yields, which move inversely to prices, fell to their lowest level since February this week amid concerns the Delta variant of COVID-19 could hamper the economic recovery.

Expectations of big corporate spending could encourage investors to buy future stock dips, softening declines that some say are overdue. The S&P 500 has averaged three pullbacks of at least 5% a year since 1950, according to Ryan Detrick, chief market strategist at LPL Financial (NASDAQ:LPLA), but has yet to log such a drop in 2021.

RISING BUYBACKS

U.S. companies have announced $350 billion in buybacks in the second quarter, the largest since the second quarter of 2018, after announcing $275 billion in the first quarter, according to EPFR.

Total S&P 500 dividend payouts rose 3.6% to $123.4 billion in the second quarter from the year-ago period, although that amount trailed record payouts in the first quarter of 2020, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Investors will get further insight into spending plans as more results arrive, including reports from Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) due next week. Prudential Financial (NYSE:PRU) and AutoNation (NYSE:AN) were among companies that this week expanded buyback programs.

Technology and financials announced the largest amount of buybacks among sectors so far this year, JP Morgan said in a note this week. Apple alone in April raised its share repurchase authorization by $90 billion.

Dealmaking is another way companies could deploy their resources, with Goldman projecting S&P 500 cash spending on mergers and acquisitions will jump by 45% to $324 billion this year.

“A lot of these mega-cap companies are generating so much cash that they can make sizable acquisitions," said Charlie Ryan, portfolio manager at Evercore Wealth Management. “There is a competitive advantage to having that scale, having that cash on the balance sheet.”

Analysis-Investors look to near $2 trillion corporate cash hoard to buoy stocks
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email