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UPDATE: Uh-oh: Stock buybacks are on the decline

UPDATE: Uh-oh: Stock buybacks are on the decline

08/20/2014

By Brett Arends, MarketWatch

Everyone knows the stock market has skyrocketed in the past few years, but far too few understand why.

No, it hasn't been magic. It hasn't been levitation. It hasn't been the natural state of affairs.

It's been supply and demand.

U.S. corporations have been spending hundreds of billions of dollars a year buying in their own stock, simultaneously increasing the demand for the stock and reducing the supply.

And this matters right now because...er...they just stopped.

The amount spent on share buybacks plunged by more than 20% last quarter, strategists at SG Securities calculate. Even though stock prices in the Standard & Poor's 500 were on average 25% higher than they were a year ago, the amount spent on share buybacks actually fell.

As SG notes, "US corporates (have) been the major net buyer of US equity in recent years, purchasing over $500 billion of stock last year alone." But, notes the bank, this happy trend may be drawing to a close.

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