Who’s going to buy the stocks?
Or, put differently, who’s going to buy stakes in the companies?
The answer: The companies themselves.
Buybacks are a kind of perpetual topic du jour among market participants and they’re a political piñata on Capitol Hill. But for all the attention, the following simple reality remains under-appreciated in my view: The largest source of demand for US equities is the corporate bid.
That’s the case perennially — with some notable recent exceptions — and according to Goldman, it’ll be the case in 2025 as well. The figure below shows David Kostin’s estimates for next year’s equity demand.
Note that corporate demand was net negative in 2020 as a cautious C-suite hoarded cash for the plague and played second fiddle to households in 2021, a year defined by a stimulus-fueled risk asset mania and a whole lot of issuance.
On that latter point, it’s important to emphasize that when it comes to corporates, you have to net issuance (i.e., IPOs and secondaries) against buybacks, and you also have to account for M&A. “Share repurchase authorizations YTD have reached a record high of $988 billion, while M&A and issuance remain near average,” Kostin remarked.
Assuming corporate profit margins stay healthy in 2025 and EPS growth clocks in somewhere near the low double-digit growth the Street expects, buybacks will probably be robust next year too. But if the ECM recovery ever materializes, supply will increase. Again: You do have to net that out.
Ultimately, Goldman puts the corporate bid at $1 trillion in 2025. Corporates, not households, will remain the largest source of US equity demand, Kostin remarked.
I hate that companies whose stock I own are giving my money back so the managers get richer, buy more watches and houses. Buybacks are a fraud.
As the audit partner at an international audit agency for several publicly held corporations back in the 1990’s (I was ahead of my time- and with the birth of each of my 3 children, I kept cutting back on work responsibilities and also worked an increasing percentage of time from home— until we had enough money that I quit), I remember the moment it struck me that buybacks (which reduce the denominator of the EPS calculation), were absolutely the easiest way to increase EPS- even when overall earnings weren’t growing/showing minimal growth.
Throwing money at something without “rolling up one’s shirt sleeves” to do the hard work to make improvements- whether that is stock buybacks or the US government throwing more and more money at education and getting worse and worse results, is something I find very difficult to accept as “a good idea”.
By the way, I occasionally wish I had figured out how to keep working part time (because it was fun), but I have never regretted staying home to raise my children- that was really the most wonderful part of my life (so far).