All About Stock Buybacks, a $1 Trillion Market Force

Picture yourself as the CEO of a big, publicly traded company. You want your stock to go up, both to keep shareholders happy and justify a big bonus. One option is to invest your profits in developing new products, building factories or opening stores, but boosting your stock price that way is hard. It’s much easier to have the company buy its own stock. Stock buybacks, as they are known, have come to represent the largest source of demand for US equities, and rose above $1 trillion for the first time in 2022. Also that year, Congress passed a law to impose a 1% tax on buybacks, a levy that President Joe Biden later called to be increased. The 1% tax didn’t immediately slow a gusher of new buybacks, but a bigger one might lead to an increase in dividends, payments companies make directly to shareholders.

The last several years have been among the busiest on record, according to the S&P Dow Jones Indices. S&P 500 companies flush with cash from a 2017 tax cut bought back $806 billion of shares in 2018, setting a record at the time. While repurchases slipped in 2019 and 2020, they set a record of $882 billion in 2021 before reaching $1.26 trillion in 2022. In January, $132 billion in planned buybacks were announced, more than triple the level of the year before. For index members, buybacks have exceeded dividends in every quarter but two since 2010.