The biggest buyers of stocks are coming back, it is not the institutions but companies buying back their own stock. Stan Choe of the Associated Press wrote about the ebbs and flows of stock backbacks.
Business were holding back on repurchases because they were in one of their blackout periods for buybacks, a regular occurrence leading up to the release of their quarterly results.
Buybacks are huge in this market, partly because of the record profits companies have been making thanks to lower tax bills. It is expected buybacks will reach $ 1 trillion this year. Last year the number was closer to $500 billion.
In the financial services, analysts expect to see Bank of America, Citigroup and Wells Fargo as the most aggressive buyers.
Buybacks provide support for stock prices or limits the decrease, as well they enhance the EPS or earnings per share. When a company makes a $100 profit, if there was a 100 shareholders the EPS would be $1 per share. If the company buys back 50 shares the EPS jumps to $2 per share and the price of the share tends to increase as it trades at normal times EPS of its industry. In this example if the answer is 15 times earnings then the stock would move from 15 (15 x 1) to 30 (15 x 2).
Linking to dividend paying stocks, there are cycles and normal actions that happen on the market, for example when companies can and can not buyback shares. Patterns and cycles help make easy money for you.
There are more questions than answers, till the next time – to raising questions.