S&P 500 Buybacks Decline 55.4% in Q2, Trend Expected to Continue in Q3

September 15, 2020 11:20 AM

S&P Dow Jones Indices said today that preliminary Q2 2020 S&P 500 stock buybacks stood at $88.7 billion, which represents a 55.4% decline from the first quarter of this year when share repurchases amounted to $198.7 billion. It was the lowest rate since March 2012.

Also, the new number represents a fall by 46.4% from $165.5 billion repurchased in the second quarter last year. The new set of data doesn’t come as a surprise as companies still face consequences of the pandemic and lockdown measures.

"Companies pulled back on buybacks in Q2 2020 as the COVID-19 impact on sales, liquidity, and business lines displaced share repurchases," said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.

Apple (NASDAQ: AAPL) led the pack by spending $17.6 billion in Q2 2020, followed by T-Mobile (NASDAQ: TMUS) ($17.2 billion), Alphabet ($6.9 billion), Microsoft (NASDAQ: MSFT) ($5.8 billion), and Regeneron Pharmaceuticals (NASDAQ: REGN) ($5.5 billion).

Here are the key takeaways from today’s report:

"Q3 2020 expenditures are expected to be a tick better as those who have strong cash-flow and active business lines continue to buy and some recovering issues venture back-in, even if just to cover employee options and protect EPS."

"Looking beyond Q3, Q4 2020 remains contingent on the economy, which is contingent on the COVID-19 recovery," Silverblatt added.

As for the data per sector, the IT sector continues to lead the way by spending $39.6 billion for the quarter, which is 37.7% from $59.1 billion in the previous quarter. However, given that the decrease in other sectors was even sharper, the IT sector actually managed to increase its representation to 41.6% of all buybacks, up from the prior quarter's 29.8%.

“As businesses reopen and the economy picks up, companies will need to address prior actions as well as initiate new procedures and policies to function in the new environment, including potential reorganization to address employee location needs and shifts in customer base and cycles. These expenditures could limit the discretionary buybacks they're able to do," concluded Silverblatt.

Elsewhere, financial buybacks collapsed by 82.1%, similar to declines witnessed in Energy (98.5% from Q1 2020), Consumer Discretionary (91.8%), and Industrials (91.2%). The Communication Services was the only sector to rise, up 37.7% over Q1 2020, on the back of T-Mobile's $17.1 billion expenditure. Excluding this item, the sector was down 47.9%.

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