Share Buybacks Have Been Playing A Huge Role In The Market Rally

Amid this calm, however, stocks have pushed back to record highs.

But there is a market force at play that we've talked about before, but is worth keeping in mind when the market seems to just keep grinding higher.

It's not the Fed.

It's stock buybacks.

Share buybacks involve companies purchasing shares of their own stock, creating fewer shares available for public ownership, which in theory should make the price of the outstanding shares go up.

In a recent note, Charlie Brown, Managing Director at Intercontinental Exchange, notes the impact recent buybacks have had on the market:

Last year, companies in the S&P 500 bought back some $475 billion of their own stock. For the 1st quarter of this year companies purchased an additional $160 billion. Estimates for the balance of the year are close to $350 billion. Combined this with the flurry of dividend activity/increases and you have a significant amount of all the profits of the S&P 500 companies going back into the hands of shareholders. Half the reason this market has not seen any significant pull backs is because corporations are buying any dips and have plenty of cash on hand to continue to do so. We shall see if it continues.

In the last few weeks, the Dow, S&P 500 and Nasdaq have enjoyed somewhat stealthy rallies that have left many scratching their heads. The S&P 500 is up 4% since May 21. The Nasdaq is also up 5.7% over the same period.

If you're ever wondering who keeps buying stocks, don't forget about the companies themselves.