The stock market is close to finding its bottom as corporate share buybacks surge to record highs, JPMorgan says

• A record surge in corporate buybacks could help the stock market find its bottom, JPMorgan said.
• The bank estimated that buybacks increased three to four times higher than usual during the ongoing sell-off.
• S&P 500 companies have announced $429 billion of buybacks in 2022, a higher pace than in 2019 and 2021.

The stock market could be close to finding its bottom thanks to the ongoing execution of stock buybacks by corporations, JPMorgan said in a note on Wednesday.

Corporate buybacks have picked up considerably during the ongoing stock market decline, and a record amount of buybacks have been announced so far this year, according to the bank.

"In the latest sell-off, JPM estimates 3-4x higher buyback executions than trend, which implies the corporate put remains active," JPMorgan's Marko Kolanovic said.

S&P 500 companies have announced a record amount of buyback activity so far this year, at $429 billion. That level represents a stronger year-to-date pace than 2019 and 2021, according to Kolanovic.

In the first quarter of 2022, buybacks were up 45% year-over-year and up 3% quarter-over-quarter. Much of that growth was in the tech, financials, and healthcare sectors, with stock buybacks totaling $62 billion, $49 billion, and $39 billion, respectively.

Energy companies also significantly ramped up their stock buyback activity as they benefit from higher oil prices, with the sector buying back $9.5 billion in stock compared to just $500 million in the first quarter of 2021.

The trend of elevated stock buybacks should remain in place for the next few weeks as more companies come out of the blackout period after having reported quarterly earnings results. JPMorgan estimates 15% of companies are still in the blackout window.

JPMorgan views the elevated corporate stock buyback activity as not overextended, and likely to continue given that businesses are still generating strong cash flow on healthy margins, even in the face of what many market participants view as an elevated risk of recession.

JPMorgan also sees end of month rebalancing flows driving 1% to 3% in equity outperformance over the next week as pensions sell bonds and buy stocks.

That, combined with the worst investor sentiment since the Great Financial Crisis in March 2009 and strong corporate stock buybacks, gives JPMorgan the conviction that a stock market bottom is near, if it hasn't already been reached.