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Corporate stock buybacks hit new record, surpassing 2018

·2 min read

Companies listed on the S&P 500 bought back a record-setting $234.5 billion in shares in the third quarter of 2021, surpassing the previous record of $223 billion in the fourth quarter of 2018, according to preliminary data from S&P Dow Jones Indices.

Amid the COVID-19 pandemic and efforts to conserve cash, buybacks fell to around $89 billion in the second quarter of 2020. But in the second quarter of 2021, S&P 500 buybacks neared $199 billion, around where they were in the first quarter of 2020, The Wall Street Journal reported.

Buybacks benefit stock holders by lowering a company's share count and upping profits per-share. They can also signal to investors that executives are positive about their organizations' financial future.

"It's always comforting to have a management team come in and tell you how undervalued they think their shares are," Anne Wickland, a portfolio manager at Easterly Investment Partners, said, per the Journal. "It's a vote of confidence in the longer-term outlook."

But recently, Democrats have criticized buybacks, claiming companies should invest in their businesses rather than focusing on share prices.

Just last week, Sen. Elizabeth Warren (D-Mass.) criticized Hertz rental car company for providing buybacks to its investors despite increasing rental prices.

In a letter to Hertz, Warren wrote that the decision "reveals that the company is happy to reward executives, company insiders, and big shareholders while stiffing consumers with record-high rental car costs and ignoring the recent history that nearly wiped out the company."

Following the spike in buybacks prompted by President Trump's corporate tax cuts, Senate Majority Leader Charles Schumer (D-N.Y.) and Sen. Bernie Sanders (I-Vt.) introduced legislation to limit the practice.

"At a time of huge income and wealth inequality, Americans should be outraged that these profitable corporations are laying off workers while spending billions of dollars to boost their stock's value to further enrich the wealthy few," the senators write," the senators wrote in a New York Times op-ed.