A sign that companies are feeling good about the path of the U.S. economy is picking up stocks.
Companies like Meta ( META ), Disney ( DIS ), and Uber ( UBER ) all announced plans to buy back shares this earnings season. Acting on these buyback authorizations, S&P 500 members bought back $63 billion worth of their own stock in the first week of February, the highest total in a week since May 2023, according to data from Deutsche Bank.
Barack Thatte, Deutsche Bank's director of global asset allocation and US equity strategy, explained to Yahoo Finance that when earnings rise, pullbacks often follow. Companies' free cash flow often increases as earnings improve. Corporates will first use that money to pay down debt. Then, the remaining funds are often used to pay dividends, increase capital expenditures for reinvestment in the company, and buy back shares.
Share buybacks reduce the total amount of shares outstanding to the public, increasing investors' equity in the company and increasing their share of potential dividends. This is seen as positive for investors, but is often the first thing to be shorted when times get tough.
That is, when withdrawals have been sluggish over the past few quarters, companies may see a rebound in withdrawals as a sign that they feel they are in a strong position.
“They're not saying the all clear yet, we might be out of recession altogether,” Thad said. “But at the edge they're saying, 'Yes, we're seeing signs or things changing.'”
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