This month has brought a jarring return to volatility for U.S. stocks, and along with it, a growing number of do-it-yourself investors trying to time the market despite its unpredictability. One factor investors have been keeping an especially close eye on is the buyback blackout period, which is now over for about half of the S&P 500, according to Goldman Sachs analysts.
Investors are keeping tabs on the buyback blackout period
Unofficially, a company’s buyback blackout period generally lasts from the last two weeks of the quarter until after 48 hours it announces the quarter’s earnings results. However, this is hardly a firm rule because companies can set rules enabling them to buy back shares during the blackout period under certain conditions. There is also no federally-mandated requirement for such blackouts.
The high level of investor interest in the end of the buyback blackout period can be observed by simply looking at Google Trends data. Deutsche Bank strategist Pareg Thatte and team pointed this out in a recent note. A review of the Google Trends data for the keyword phrase “buyback blackout” reveals searches for that term soared to a new high this month. Investors remain riveted because searches for the term remain high.
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Deutsche Bank estimated that last week, companies representing about $50 billion worth of share repurchases had already exited their buyback blackout period. The investment bank estimates that by the end of this week, that number leaps to $110 billion. By the end of next week, companies with approximately $145 billion in share repurchase authorizations will be out of their blackout periods.
Buyback blackout period blamed for October selloff
Multiple investment banks have noted recently that share repurchases have been driving the recent stock rallies. As a result, investors are keenly interested in pinpointing the end of the buyback blackout periods for the companies they own shares in because repurchases are expected to push stocks even higher.
October has been marked by much higher levels of volatility than what we have seen over the last couple of years. Quick glances at major U.S. stock indices like the S&P and Dow make it clear just how volatile U.S. equities have been. Over the last five days, we can see repeated spikes and falls only a day apart.
JPMorgan analysts said in a recent note that the buyback blackout periods have been a key driver of the October selloff. They expect share repurchases to pick up dramatically after companies exit their blackout periods because of the selloff. Companies with share repurchase plans in place tend to buy their shares during times of weakness, and October certainly counts. Another key factor in share repurchases this year has been the Trump administration’s tax cut, which freed up more corporate capital for things like buybacks.
Prepare for a surge in share repurchases
After the February selloff earlier this year, Bank of America Merrill Lynch said share repurchases saved the S&P 500, so it makes logical sense that the same thing will happen again after this month’s selloff.
Overall, Goldman Sachs expects $1 trillion in share repurchase authorizations this year. JPMorgan now estimates share repurchases among S&P 500 companies at about $900 billion to $1 trillion for this year, an increase from the $800 billion it expected at the beginning of the year. Deutsche Bank estimates the average weekly share repurchase amount at about $15 billion — when there are no buyback blackout periods in place.
UBS also mentioned share buybacks in a recent note. The firm expects repurchases and dividends to more than triple between early October and the middle of November. That’s when the majority of buyback blackout periods should be over.