The stock market's safety net will be bigger than ever in 2025
- The stock market's safety net will be bigger than ever in 2025 as share buybacks rebound, Goldman Sachs said.
- Share repurchases saw their second-largest drop since the Global Financial Crisis in 2023, but are poised to stage a two-year recovery.
Buybacks are set for a comeback.
So says Goldman Sachs, which sees the strong earnings growth shown so far in 2024 continuing through next year. The firm forecasts that share repurchases will total $925 billion this year, then climb past $1 trillion for the first time ever in 2025.
Goldman also cites the prospect of monetary easing and improvements in the macro environment — like the decline in Treasury yields — as reasons for buyback bullishness. The firm says cash-rich mega-cap tech companies will be most responsibile for the increase.
Buybacks have historically served as a safety net of sorts for the stock market — a way for companies with strong cash holdings to financially engineer share-price gains during periods devoid of other positive catalysts. Since each repurchase lowers the total shares outstanding for a stock, this pushes the per-share price higher. Buybacks are also a way for companies to signal to the market that they see upside in their stock, and that shares are possibly even undervalued.
Relatedly, Goldman points out that extended stock valuations could serve as a headwind to future buybacks. If a company's shares are overvalued, the firm will be more unlikely to deploy cash to buy them, due to a lack of upside.
The firm is also deferring its most optimistic buyback forecast until 2025 because of the policy risks associated with the 2024 election. Goldman says once that headwind has cleared, buybacks will have a clear path to reach a record $1.1 trillion.
The rebound in 2024 and 2025 comes after total S&P 500 repurchases saw their second-biggest drop since the Global Financial Crisis in 2023. A combination of weak earnings, high interest rates, and macroeconomic uncertainty pushed the annual figure down to $815 billion.