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BofA’s Corporate Clients Rushed to Scoop Up Shares During Rout

·2 min read

(Bloomberg) -- In the grip of the latest equity rout as hedge funds rushed for the exit, one reliable source of market support emerged: Corporate clients at Bank of America Corp. went on a buying spree.

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The cohort scooped up $3.2 billion of their own stock last week -- the most since early January, according to BofA analysts including Jill Carey Hall.

The allocations didn’t stop shares from posting a second weekly decline and it’s possible that firms are pulling forward repurchases in anticipation of a 1% buyback tax next year. Yet it’s an encouraging sign that corporate America is willing to step in during the market turmoil, giving bulls hope that selloffs may be contained.

In the eyes of Ed Yardeni, it’s further evidence that chief financial officers at American businesses are replacing the Federal Reserve as the market’s savior, a role that the central bank had played in most of the past decade in a function widely known as Fed put. Now laser-focused on fighting red-hot inflation, monetary policy makers have turned antagonistic to equity gains.

“The Fed put may be kaput, but the CFO put is still going gut, as they say in German,” said Yardeni, president of his namesake research firm. “Corporate America continues to pour some of its massive cash flow to investors through buybacks and dividends.”

The splurge on buybacks came in a week when stocks tumbled as Fed Chair Jerome Powell sent out a clear and loud message at the Kansas City Fed’s annual policy forum: the central bank is committed to brining down prices, even if that means slower growth and high unemployment.

It’s not the first time that companies rushed in to show equity bulls their support. Around the worst point of the 2022 bear market in June, Goldman Sachs Group Inc.’s unit that executes share buybacks for clients saw volume spiking to multiple times last year’s daily average, raking in the firm’s busiest two sessions of this year.

Yet fear is building that a Fed-engineered slowdown could deplete corporate cash piles used for outlays such as buybacks. Bur for now, American firms have continued as one big source of demand for their own stock.

Read more: Back-From-Dead Stocks Show Near-Limitless Tolerance for Trouble

While paring back share offerings, firms and their management stepped up purchases of their own stock through buybacks and leveraged buyouts during the first-half selloff. The result has been that equities were drained from public markets at a record pace, to the tune of $600 billion per quarter, data compiled by JPMorgan Chase & Co. show.

Repurchases tend to keep equity losses from snowballing. The S&P 500 Buyback Index, tracking the top 100 stocks with highest repurchases, is outperforming the broader benchmark by roughly 3 percentage points this year.

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