A Big Question for Stocks: Will Corporate Repurchases Continue?

Thursday, 04 Apr 2013 07:47 AM

By Dan Weil

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Corporate share repurchases have been a major factor propelling the stock market 135 percent since March 2009.

But with stock prices at record highs, companies may be less eager for buybacks, CNBC reports.

Corporations have executed nearly $1.2 trillion of repurchases since the beginning of the third quarter of 2009, according to Standard & Poor's data.

Editor's Note:
Use This Single Loophole to Pay Zero Taxes in 2013

And during that same period, investors have withdrawn more than $250 billion net out of mutual funds, according to the Investment Company Institute, taking money out of the stock market.

So one could argue that corporate buybacks offer the most important support for the stock market.

But will those buybacks continue now that companies will have to pay higher prices?

"You would think that corporate treasury departments would start to look at stock prices and earnings prospects, and they'd be smart to wait," Scott Armiger, chief investment officer at Christiana Trust, tells CNBC.

"They'll be able to do their buybacks at a much more attractive price in the not-too-distant future."

Armiger thinks the stock market is poised for a correction and thus urges clients to focus on defensive sectors of the market, such as consumer staples and healthcare.

One expert looking for more than a correction is Gina Martin Adams, senior analyst at Wells Fargo Securities. She sees the Standard & Poor’s 500 Index ending the year at 1,390, down 11 percent from Tuesday’s close of 1,570, The Wall Street Journal reports.

Stocks will likely suffer as investors begin worrying about the Federal Reserve curbing its quantitative easing, Adams says.

"While we're all hot to trot about 'don't fight the Fed' now, that mantra works in both directions," she says, according to The Journal. "Don't fight the Fed in the opposite direction when it starts tightening."

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2013

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