Corporate buyback in the US hit record levels

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Buybacks are not that common in Europe. They are more of an American thing. They are less popular partly because of the perception that they don't create a commitment by the management team to continue them when times are tough. Generally speaking, companies hate cutting dividends because that sends a bad signal to the market. However, when times are hard, it's very easy not to do a buyback because no one is expecting you to do so.

This in itself is very interesting, because when buybacks peak it gives you a very good indication that perhaps the market is getting rich. And they're peaking right now: S&P 500 companies hit a record $942.5 billion in 2024, with Goldman Sachs predicting they'll exceed $1 trillion in 2025. The concentration is also striking with just 20 companies in the S&P 500 accounting for half of all buybacks, led by tech giants flush with AI profits. History shows buyback peaks often coincide with market tops. We saw this in 2022 before the correction.

CHART 1 • Corporate buyback in the US hit record levels

Corporate America is putting its money where its mouth is. July's $166 billion in buyback announcements shattered records for the month, propelling 2025 towards an unprecedented $1.1 trillion total – a figure that would eclipse last year's already eye-watering $942.5 billion record. Tech giants are leading the charge, with Microsoft committing $80 billion this fiscal year alone, while Amazon, Alphabet and Meta collectively plan to deploy over $300 billion.

This buyback frenzy is a massive bet on American corporate dominance at a time when markets are priced for perfection. The S&P 500 trades at 22 times forward earnings, leaving no room for error. The concentration in the market is also staggering: the top 20 companies now account for nearly half of all buyback spending.

Yet beneath this confidence lies a curious paradox. While companies are rushing to repurchase shares at record valuations, the 1% excise tax on buybacks is starting to bite, reducing Q1 operating earnings by 0.50%. Goldman Sachs expects the buyback boom to continue, projecting corporate repurchases will top $1 trillion for the first time this year. This is a level that could either signal supreme confidence in future growth or the absence of better investment opportunities.

Source: Bloomberg

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