Buybacks will likely fall 15% in 2023.

That’s according to Goldman, whose Ryan Hammond and David Kostin updated their cash use forecasts for S&P 500 companies.

Overall, the bank expects cash spending to fall 1% this year, consistent with slower earnings growth. Cash balances, which just posted the largest 12-month decline on record, are still high in absolute terms, but not relative to assets.

In the absence of robust earnings growth, raising new cash would mean borrowing, and that’s not especially palatable given where rates are. Cash spending has already slowed, starting with buybacks and now leaking into capex.

Goldman still doesn’t see a recession this year, but nevertheless expects buybacks and cash M&A to fall. R&D spend should grow “modestly,” as should capex and dividends. As the table below shows, the bank expects all categories to resume growth in 2024.

I don’t think it’s a stretch to suggest many investors care more about buybacks than they do about other avenues for cash deployment. That’s unfortunate but… well, to the extent it’s an undesirable predisposition, we cultivated it, and you reap what you sow.

From management’s perspective, there’s little incentive to invest for growth if you think we’re late-cycle, and shareholders are likely to be skeptical of such spending, particularly if it comes at the expense of margins.

“In an economic slowdown or recession, investors primarily gravitate towards companies with strong balance sheets [but] among companies with secure balance sheets, returning cash to shareholders offers a way to ‘play offense’ in an otherwise defensive backdrop,” Hammond and Kostin remarked.

That said, there are a number of obvious impediments. “The slowdown in earnings growth, the increase in policy uncertainty following the recent banking stress and high starting valuations at which to repurchase stock all pose headwinds to buybacks,” Goldman went on, adding that with cash balances having dropped meaningfully, “one existing source of capital to fund buybacks” is limited, while “the cost of debt has risen sharply, removing the incentive for debt-funded buybacks.”

It’s notable that just two of Q4’s biggest 10 “buyback payers” increased executions in Q1. They are: Meta and Microsoft. Although authorizations are high, that doesn’t necessarily mean executions will be, and as the figure on the left below shows, authorizations are themselves down 9% from last year’s torrent pace.

The table on the right above is simple enough: Bottom-up consensus (i.e., company analysts) expect a 17% decline in buybacks this year.

As for legislation and regulatory shifts, Goldman doubts the 1% excise tax will have a material impact, but suggested the levy, when considered with new SEC reporting requirements, “could disincentivize buybacks on the margin.”

Finally, a recession would obviously be very bad news for buybacks and cash M&A, which history suggests would plunge by at least half in an outright downturn.