[00:00] We've got the major indexes sitting near record highs, even the small cap Russell 2000. The S&P 500 alone has added $16 trillion in market cap since the April lows.
[00:15] And meanwhile, the Fed is cutting again. An earning season is about to start, but one of the biggest supports for stocks is fading right now. The stock buyback bid. And that's what we're digging into on today's Stocks in Translation.
[00:28] First, a quick definition. A stock buyback or repurchase is when a company uses cash to buy its own shares in the open market. Fewer shares can lift earnings per share and also support the stock price.
[00:40] And it can also help offset any compensation paid to employees in stock. The buyback is a legal common tool, but it does not guarantee gains. The first chart that we're going to look at, courtesy J.P. Morgan, shows how stock buyback announcements have been tracking this year in white versus a three-year average in green.
[00:57] Notice how 2025 climbs faster and higher It only September and we already closing in on trillion which happens to be the end of year average Also important these are only announcements not actual buyback
[01:11] executions, which we're going to take a look at next. This next chart by UBS shows the rolling five-day buyback executions for 2025 in billions of dollars. Notice the rhythm. There are four
[01:23] separate waves per year, which coincide with each of the four earnings seasons. We're going to get to exactly why this is in a minute. Meanwhile, the dotted line shows where we are right now, and just to the right of it is an estimate for the rest of the year.
[01:39] Then if you look just to the left of the dotted line, you're going to notice how buybacks have recently dropped off quite steeply. This is because we are now in the buyback blackout window. This is a quiet period before earnings season when many companies pause share buybacks.
[01:54] They do this to avoid trading while they hold earnings results that are not public just yet. Some companies keep a small autopilot running which is perfectly legal but overall buyback demand it drops noticeably In this next chart from Goldman Sachs we going to zoom in on the current blackout window which tracks mid through mid
[02:15] The vertical axis tracks how many companies in the S&P 500 are in the window right now. The higher the number, the fewer the buybacks. And you can tell from the dotted line showing where we are right now that we're getting close to the peak, which extends into mid-October.
[02:30] This means the so-called buyback bid is shrinking, but should start building again as earnings results hit the tape and companies exit the window. The timing matters because September is historically the weakest month of the year.
[02:43] This chart shows the median gain or loss for each month in the year in the S&P 500 going all the way back to 1990. You're going to notice that only September tends to be negative. And remember, that's right about when the blackout window widens, which is right now.
[02:58] And although October is a good month for stocks on average, it's a month when historically we've seen a lot of stock market crashes and when volatility tends to spike. So just to recap we are at record highs right now the Fed is easing we got earnings ahead but the buyback safety net is partially pulled back until results start rolling in It just means a bit less cushion and bigger day swings
[03:21] Here's what to watch out for next. Remember that the buyback blackouts, they peak in mid-October. Then they lift. Watch out for the buyback bid to return as earnings season shifts into high gear. Then, as results roll in, you've got to pay attention to companies updating their share repurchase plans.
[03:38] And also watch out for spikes in the VIX volatility index, which tends to get bigger into September and October. A higher VIX usually means weakness in stocks. And also, you might keep an eye on long-term government rates.
[03:51] A big jump, they can take bites out of stocks and kind of hit them harder when buybacks are light. So the bottom line is, for the next few weeks, the market's biggest consistent buyer is mostly on the sidelines. So a little caution is warranted as we celebrate all these record highs.
[04:06] And tune in to the next Stocks and Translation, the podcast, for more deep dives into markets. New episodes can be found Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcasts.