The approximate value of stock that S&P 500 companies are on track to repurchase this year, which would eclipse 2007’s record buyback bonanza of $589.1 billion. Among the biggest buyers: Oracle, Bank of America and JPMorgan Chase.
The historic spending spree isn't giving share prices the boost companies bargained for, and has some analysts worried that they're buying at excessive valuations during the peak of the economic cycle. Separately, business borrowing is picking up, a welcome relief for lenders and a sign of strength for the U.S. economy. The acceleration in lending may help lift results when banks report quarterly results this month, including JPMorgan, Wells Fargo and Citigroup on Friday.
The markets overlooked the imposition of tariffs last Friday to move higher in a quiet, holiday-shortened week. The Russell 2000® Index’s 3.1% increase led the major indices, followed by the Nasdaq (+2.37%), the S&P 500® Index (+1.51%) and the Dow Jones Industrial Average (0.76%). Year-to-date, investors have favored the Nasdaq (+11.4%) and the Russell 2000® (+10.3%) on the assumption that companies in these indices offer greater growth potential and are better insulated from the impact of trade tariffs. In contrast, the Dow remains in negative territory for the year as companies in the Dow are expected to disproportionally shoulder more of the tariff fallout. Last week’s gains in the S&P 500® represent almost half of its gains for the year as the Index, and the Dow, continue to underperform.
Trade continues to dominate the headlines as the U.S. imposed tariffs on $34 billion in Chinese exports; China immediately reciprocated on an equal value of American goods, principally agricultural staples and vehicles. In total, President Trump has imposed $85 billion worth of tariffs on imported solar panels, aluminum and other Chinese products. At present, the parties have no negotiations planned so the status of future tariffs is unknown. And, despite word of a proposal to eliminate tariffs on U.S. vehicles imported into Europe (a policy which Germany would likely support), the European Union has taken no formal action on a mutual no-tariff policy for automobiles. Elsewhere, this week’s positive economic news included a sharp increase in service sector activity. And, Friday’s jobs report showed a larger-than-expected gain of 213,000 jobs in June with unemployment rising from 3.8% to 4%; the workforce grew by 601,000 as the strong labor market attracted new job seekers.
This week, second quarter earnings releases begin with JPMorgan, Citigroup and Wells Fargo reporting on Friday. Company commentaries and updates on tariffs will likely impact investor sentiment. Markets seem to anticipate that a full out trade war is unlikely. The continued advance in the equity markets is confounding market timers during this normally slow period of the year. Predicting the market’s direction is difficult in the best of times; today, the focus on maintaining a longer-term, adaptive strategy remains essential.
Source: Wall Street Journal, Pacific Global Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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