Who’ll be the biggest buyer of US equities in 2024?
If you said “Well corporations, of course!” you win a prize.
This statistic is hardly news, but it nevertheless bears mentioning from time to time: Over the past quarter century, the corporate bid has accounted for the lion’s share of equity demand.
As the figure shows, no other cohort is anywhere close. Net demand from corporates sums to $5.5 trillion over the past 23 years.
Note: This is net demand. So, inclusive of buybacks, cash M&A and issuance (IPOs and secondaries).
In 2023, net corporate demand was the strongest in five years. Buybacks fell, but ECM activity (the offset in the equation) remained very subdued. The latter should pick up this year, but so should buybacks, according to Goldman.
The bank expects a 13% increase in buybacks this year, driven by 8% S&P EPS growth. Historically, 8% earnings growth would translate into a 15% bump for buybacks, but Goldman trimmed that to account for elevated valuations and higher uncertainty around the election.
The bank also expects another good year for cash M&A on the heels of 2023’s 34% increase. So far in 2024, announced M&A deal value is up 50%, Goldman noted.
Meanwhile, the long-awaited recovery in ECM is upon us. Maybe. Reddit went public. Did you hear? (That’s a joke. Of course you did.) 2022 and 2023 constituted drought conditions for equity issuance. Pretty much every quarter last year, bank executives talked up an ECM rebound that was purportedly just around the corner. Finally, it feels like the environment’s improving.
The figure on the left above gives you some context for how moribund the last two years really were. The figure on the right shows a Goldman barometer for IPO activity, which recently moved back into territory indicative of favorable conditions for equity issuance for the first time since the Fed started raising rates.
“Provided the macro environment continues to improve, we expect the IPO market to re-open in 2024 and drive an upswing in issuance,” the bank’s Cormac Conners wrote.
What does it all mean? Well, taken together (i.e., netting buybacks, cash M&A and issuance), net corporate demand for equities in 2024 should be $625 billion on Goldman’s estimates, up from $565 billion last year. For context, household demand should be $100 billion this year, while every other cohort — foreign investors, mutual funds and pensions — is expected to be a net seller.
