The 3 Reasons Why Stocks Have Skyrocketed Over the Past Couple of Years

George Washington's picture

Stocks have soared since 2009 because the Fed's quantitative easing has - intentionally - pumped them up.

They've also skyrocketed because central banks are directly buying stocks.

NBC News reports on a third major reason that stocks took off ... corporate buybacks:

It's the narcissist rally.



You may want to spare a thought, and a healthy dose of worry, for what is one of the biggest, and least appreciated, reasons for the rally: buybacks.


Flush with cash and a world of opportunity at their doorstep, companies have decided there's nothing more attractive than themselves. So, they're offering big money to buy back their own stock. This year, big U.S. companies have given the go-ahead for $286 billion of buybacks, up 88 percent from the same period last year, according to Birinyi Associates, a market research firm. If the pace continues for the rest of the year, the tally will exceed the record set in 2007.


Every manner of company is caught up in the buying binge, including home-improvement chains, makers of farm equipment and jet engines, airlines, sellers of soft drinks and of hard liquor alike. Not one to miss a hot trend, Apple recently authorized as much as $50 billion of buybacks.


Investors like buybacks because they suggest companies think their stock is cheap. They also help reduce the number of shares outstanding, which automatically increases earnings per share. And higher earnings per share often, though not always, lead to rising stock prices.


But buybacks are also crucial to the rally for a reason that's not widely known. Companies are one of the few big stock purchasers nowadays. Nearly every other big player in the stock market has been selling more than they've been buying.

Pension funds have been selling. Local and state governments have been selling. Investment brokerages have been selling. And, yes, until recently, even Main Street investors.


You can see this in the data released by the Federal Reserve each quarter, and it's a sea of red — save for corporate buying, that is, buybacks plus purchases of other companies. In total, U.S. companies, not counting banks and other financial firms, have bought more than $1 trillion of stock in the five years through 2012, net of stocks they've issued.




However much they spend, each dollar of buybacks appears to be having a greater effect on raising the prices of certain stocks. That's because fewer shares are changing hands each day. On Wall Street, it's referred to as a "drying up" of liquidity. And like in any market, a purchase or sale when fewer people are trading can push prices up and down much more.


DirecTV bought $1.4 billion of its own shares in the first quarter, or 7.8 percent of all trades in the company's stock, according to data from Birinyi Associates. DirecTV rose 12.8 percent in the same period, two points more than the Standard and Poor's 500. IBM bought $2.6 billion of its shares in the first quarter, or 5.6 percent of what was traded. It rose 11.8 percent.




Companies that do buy back their own stock are seeing prices soar, and almost immediately.


On Friday, Northrup Grumman jumped 4 percent after announcing it had authorized $4 billion of buybacks. The military contractor said it expects buybacks will cut its shares outstanding by 25 percent by the end of 2015.


Another big share buyer, Home Depot, rose 5.7 percent on Feb. 26 after it announced a $17 billion buyback program. The S&P 500 rose 0.6 percent that day. If the retailer spends all the authorized in its plan, it will remove 18 percent of the shares outstanding at current prices, which will make the impact of a next round of purchases even more powerful.


Stocks of companies that have authorized the 10 biggest buybacks so far this year have risen 2.2 points more than the S&P 500 in the week after their announcements....


Gregory Milano, CEO of consultancy Fortuna Advisors, has run studies showing that companies that spend the most on buying back their own stock tend to underperform because they don't spend enough on opening new factories, research or otherwise building their business for the long term.


Andrew Smithers, who runs a London-based investment consultancy, thinks buybacks have pushed stocks more than 40 percent higher than they're worth. In his book "The Great Deformation," former U.S. budget director David Stockman says Corporate America is drunk on buybacks and that they've helped push stocks up too far, too.




Forty percent of the increase in the earnings per share of S&P 500 companies in the past 12 months came from reducing the number of shares through buybacks, estimates Barry Knapp, chief U.S. stock strategist at Barclays Capital.

Postscript:  Max Keiser points out that quantitative easing and corporate buybacks are related

Specifically, the Fed's easy monetary policy means that big corporations can borrow cheaply ... and then use the money to buy back their own stock.

The bailouts and easy money aren't going into helping Main Street or stabilizing the economy.

Of course, most of the trading is done by high frequency computers these days.

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CutOut's picture

i-dog is a heart sockpuppet.

heart's post volume has dropped substantially since it was exposed for posting Boston bombing 100% disinformation.

heart will have many bogus identities on ZH.

goober's picture

The evidence that gov was buying futures and equities was beyond obvious in the charts and outcomes/actions that took place a short while ago a few years and since? Do you think they would do it in such a way that you could prove it easily ? HA HA HA   There are other forms of proof if one cares to look or has then sense to see it ? Saying there is no proof , proves my analysis of morons on ZH !  Another group think bunch would ne the "JUs are responsible for all ills of the world" bunch ?  

By the way GW s post have largely been very good . He was spot on on GOM , FUKU and the overall malfeasance so rampant in this regime and prior others and he acknowledges that this regime has taken it all to new heights ?

My overall point is that all the garbage we see is just people acting out in very selfish/greedy and sociopathic/psychopathic ways. Governments are people and people are capable of very horrific events usually motivated by greed and power ciontrol . Currently Assad would be a good example ? so go ahead and immediately tell me how Assad is a good guy ??? And the FSA are criminals and terrorist associated ? What would any of you do if your gov bombed you neighborhood ? most on here would do nothing but the few that would act , would do excatly what the FSA has done . Defend themselves ? ZH is now the same as the average populace ? a 50/50 split of actual thinking and utter sheep nonsesne .  Go along to get along , just how has that worked out ?     

onthesquare's picture

What does NA (not available) and infinity have in common?

P/E price to earnings ratio

goober's picture

there are many other schemes that have taken place in conjunction with QE like fed buying futures after hours during Asia and Europe hours prior to our open and actual of shore buying of specific equities ? The entire thing is a giant illusion and actually quite illegal but , who cares so long as all is well in USSA ?  We do live in massive illusions , let there be no doubt . It does appearthe current leak and double speaks indicate that they are testing the waters of reactions from the market participants to determine what to do next and perhaps just how strong the actions should be ?

There are no real markets ,as in free markets ,and ctually the USSA defaulted when H Paulson gave his giant lie to save GS on the AIG debacle and demanded an exemption from future porosecution at the same time from congress and it !  HA HA HA it is all an illusion and scheme and nothing more , nothing has been fixed or resolved , only much more debt piled on as the illusions grow ever grander! And who has benefitted the most ? The Banks and all elites and insiders of many flavors ? take your pick on flavors .

Seer's picture

Not so certain that legality has much to do with anything given that many things deemed "legal" are quite troubling: currencies not backed by anything (accepted as "legal"), "fractional reserve banking" (a bedrock of the entire System), etc...

We're still looking for the "fall guy" to blame for what will be a discarding of retirement pensions.  Pensions were enticements based on perpetual growth (not possible on a finite planet).  The current ruling generation will do what ruling generations have always done- protect their own interests and pass along the consequences to future generations.  This is by no means a statement on the whole, rather, it's a statement of what TPTB do/will do.  Upsetting the current generation threatens the previous ones (retired seniors) as well as the up-coming "replacement" generation.  If you drag things out sufficiently long enough the "replacement" generation becomes programmed to accept the new realities: and no matter what the System says the REAL new realities will most assuredly come with insufficient NATURAL capital in which to allow the human-made reality to exert its "growth model."

falak pema's picture

dumbing down first world's millenium generation, those w/o work or future, and refueling the magnified projection  of the brewingly awesome terrorist third world menace, like that 30s iconic film Mister M, is now in the cards. Cauldron bubble...

Ben Laden's legacy has its uses, for both US and Arab Oligarchs. Will they stay on same page?

Just like the last depression fueled fascism: the ideological backlash of moslemisation of the dumbed down arab/paki/afghan crowd; those who fought against that other menace : "the commie scare", will now serve to reset first world to Caesar's return. We will soon need a "strong man" for sure, to clean out the AUgean mess of democracy's global failure. 

EMpires always have cards up their sleeves and the people are now blind to serve as checks and balances, let alone think straight about past cause and effect. MSM makes sure that we stay bemused n confused chasing red herrings.

We will now see populist rage rise like in feudal times against the "other guy, who wants to take our lifestyle"; all the while people have forgotten to count : for every injun we kill how many blue coats do they get the picture; 1000/1. Thats empire play and herd thinning in the pipe line, if necessary...dumbed down generation losing its sense of values and hey presto! they sing the song of the brown shirts! 

Convenient game to divide n rule, stir the hornet's nest and reap the wind of more confiscation of the remaining assets of "dirty vermin". Oh isn't civilization a heavy burden to carry! 

As there are no true lifesized visible enemies out there (NKor, Iran, AQ) ; its the financial/energy collapse of this system which is now the matchstick to the bonfire of hubris.

Unless they go the whole hog to military rule in land of free. Then those global and national oligarchs will start playing Sarajevo 1914 and blame each other. Thats how the past played out time n again. 

CH1's picture

Great post, goober. Thx.

rsnoble's picture

There were a shitload of buybacks in 08 before the crash. Just saying.  Everyone thought it was ultra bullish.  Almost everday someone was announcing some huge purchase.  Makes me wonder if they even know what the fucks going on sometimes.  I still recall watching the ATI chart flash crash and Harley Davidson just happened to pick up 1000's of shares at the exact low which lasted about 1.2 seconds.

rsnoble's picture

Which btw ATI is considerably lower now than their buyin. Haha assholes.

ebworthen's picture

So this explains why there are so many stocks that are up 50% in the past year.

Such a tremendously ridiculous bubble.


Seer's picture

Well, if scarcity is a determining factor of price then I suppose it makes sense.  I'm of the opinion that much is the result of self-preservation and that in this case it doesn't have the feel of conspiracy that it might otherwise have.

At some point scarcity will make a thing become almost irrelevant as there wouldn't be enough people involved (which is the only way bubbles can really happen, the only way they can have and real legs).

You are correct in that this piece can be tagged PONZI, but it's only a subset of the BIG Ponzi that is perpetual growth on a finite planet (all else takes on the attributes of this parent process).

Yellowhoard's picture

It makes perfect sense for a company that pays a dividend over 3% or so to buy back it's own shares.

Why put money at risk elsewhere else when you can buy your own stock and eliminate dividend payments?

falak pema's picture

on this issue :

I guess this points the same way as what GW says; buyback is payback for the Oligarchy with Zirp money. 

TeddyBear's picture






So let me get this right.

Mom & Pop and the little guy are not buying.

So they have no shares to sell.

Big companys are buying and they never sell and drive the price down.

No one is left to sell stocks.

The bull is about to go a lot higher.

This market can only go up.

I made 30% this year & was shorting Banks last few days, buy end of day , stop out mid next day for profit repeat.

But I will go long soon, I got a VIX buy Friday. No more margin. I will just max VT for total market and no big fast drops for summer.

3% stops or less. Up up and away.


PS- let us know when the little guy starts buying, that will be the endgame.

My last buys:




MSFT is on a tear.

$$$dreams all....

spinone's picture

No one is selling stocks, except every baby boomer who is retiring.  Every day for the next 19 years, 10,000 people will turn 65.

MeelionDollerBogus's picture

ok, how many will believe yield from dividends is a reason to hold so that selling is a bad idea?

After all, shtocks only go up.

onthesquare's picture

Any IPO's coming up will have a hard time raising capitol if the stock market is this crooked.  The entire game is un-policed and that would include the requirements to be met to issue IPO's. 

Seer's picture

"No one is left to sell stocks."

No, there are still plenty of funds holding stocks.  And this, I suggest, is the real heart of the matter- it's a battle to keep retirement and pension funds from collapsing.  But, yes, "mom and pop" are out as direct buyers and sellers; they still, however, are likely to be "in" via investment funds (but will fade more and more as the funds shutdown because they can no longer provide the "required" returns).

onthesquare's picture

Watching trust funds over the years seems to be a preview of what is going on now.  Trust funds paid dividends of about 1/2 of the stock price from when you bought.  They would never hit zero but you sure could see what a "washout" curve looked like.

mayhem_korner's picture



Great post GW. 

The big banks are flush with reserves from the CBs in part to cushion against the risk of a run.  In the meantime, since they are unwilling to lend out the reserves and double-down on more toxic loans, they simply chase yield in a self-fulfilling prophecy of stock-ramping.

The corporate executives face a similar situation - they don't want to hire anyone because they businesses are not growing in real terms.  So they "invest" their surplus reserves in buybacks to leverage earnings and fit the narrative to the stock ramp the CBs are orchestrating.  Plus...the execs have a motivation to boost the stock price through volume dilution - makes their performance compensation packages sweeter.

We are witnessing the Sodom and Gomorrah of fiat.

Seer's picture

It's like playing the game of Monopoly knowing that it's the last time.  When the game is finished then what value is there in having "won" (and holding a bunch of virtual/pretend stuff)?

Lets Buy The Dip's picture

This market is doing exactly what most people are not thinking, going higher. 

There is only a certain amount of money that can push the market, however right now the market is doing its job of screwing the BULLS adn the BEARS

But have a look, even though we are in a market reversal right now the market is still holding up strong! WOW! >> CHART HERE!!!

CitizenPete's picture

If the Fed takes away the punch bowl, or if the black swan arrives to pop the bubble you will have quite the dip to buy.  tic tic tic

knukles's picture

Common shares do not a rational, common sense investment for currency reserves make.
If it were a public entity doing such opposite a similar "reserve" or "collateral" maintenance position and I were retained for expert testimony, I'd yell "Hang the fuckers" or something along those lines.
It shouts of the very same mis-allocation of resources such as was engaged in wholesale during the dotcom boom when managers of public utility equity income funds began investing in non dividend paying telecom and computer/software/hardware companies in order to appease their bosses and sales forces (central movers in the asset gathering business) with high performance capital gains stocks (in a bubble) to goose the total returns....
Which ended very very badly for ma and pa kettle and the widows and orphans who are the target market for public utility income funds...

Same shit, different day.
And these are people who are supposed to know better

Zer0head's picture


as if one can be OT on a GW post)  George what do you make of this - i heard it on the news and now read it here


Ahead of the protests, Northumbria Police have arrested three men, two from Gateshead and one from Stockton, on suspicion of posting racist tweets.


(it's not the subject matter - it's HTF did they track down these dudes thru their effing tweets? and with some of the shit one reads on ZH - they could fill San Quentin WTF WTF

Seer's picture

Under a "twitter of suspicion"...

Arnold's picture


read your user's agreement. You don't own your tweets.

criticalreason's picture

if its all down to central banks buying then explain why japanese stocks took a big plunge last week?

Seer's picture

Not all CBs are created equal. (Fed has the world's reserve currency behind it, PLUS, the world's most lethal military force; the Fed IS the kingpin, all others are periphery to it)

TeddyBear's picture




Bull markets grind up slow with fast pullbacks. Google it.

Bear is opposite.


Look at gold grind down and fast up repeat= bear.

All we have to do to make money is BUY and set STOPS.

All this talk is fluff >: lacking in meaning or substance <.


PiltdownMan's picture

Bernanke/CBS don't control everything. Panics do happen.

disabledvet's picture

to me the biggest reason equities, property values and treasuries have all skyrocketed unlike Japan from its Great Bubble (where certainly the first two have permanently deflated) is because of policy success. 2008 "plunge protection" was designed to prevent a Japan Scenario...and it has done just that. Not saying we don't have a sell off in the cards here...but Japan never achieved Nikkei 40,000 again...and with 30 million living in Tokyo obviously it never achieved a "rational" property market either. in the USA land prices surged as soon as the Fed announced QE 1...and have maintained those exceptionally high valuations throughout all the Fed programs. indeed San Francisco property really never sold off ever. this provides an enormously DIFFUSE amount of liquidity into the US financial that is VERY good for banking of all shapes and sizes...and for funding Government programs like say...water treatment, sanitation, fire departments, police departments, school systems, etc. these have been the prime beneficiary of recovery not Wall Street in my view...something Wall Street will love to finance though going forward. we'll see about airports, subway systems, prisons and the like. "we have to fund Obamacare" and it will be interesting to see what those exchanges actually look like next year. will there even be any?

ebworthen's picture

Oh drank the Koolaid, didn't you?

Once you drink the Koolaid, you see what you want to see, not what is.

Something in your last sentence gives me a glimmer of hope that you are not too far gone.

MeelionDollerBogus's picture

You got it. The #1 investing tip of today's era: there is no fucking spoon

Seer's picture

And then there's this affliction (seemingly) running rampant:

John Law Lives's picture

"policy success..."

Subsidizing annual budget deficits of $1+ Trillion for 4 straight years whilst adding trillions to the Fed's balance sheet is HARDLY a policy that will have a successful long-term conclusion.  It is a policy of desperation.


Ih8u's picture

most of humanity are slaves to evil. The jews have you all living their "rule of law" they paw LE to force you to agree.

The public fin markets, like the rule of law is a tool to enslave you expressly to do what the jew wants.

The rule of jews is Over. The rule of good is here to destroy the evil rule of law.

The jews are dead and a footnote in history welcome to the future

Ih8u's picture

you are all mosly fuking stupid. you actually till believe in reasons beyond organized crime.

all the brokers ARE extensions of the central bank. all stock prices are fake, the "market" is a jew fraud in concert with th jew fraud called "dollar"


the jews have you all by the balls. If you want a real market wipe out the jews

Seer's picture

It's the SYSTEM!


Fractional reserve banking.

Perpetual growth on a finite planet (aided and abetted by the first two).

Please explain how wiping out all the "jews" would correct the above (terminal) problems.

Ih8u's picture

wiping ou the jews doesnt mean killing them. It is a metaphor for no longer giving them any preference at all ever. YOu all are being jerked around litteraly by a small group of jews. All fin regs are jews 100%

when you wipe them out of your mind and instead of agreeing to their bullshit, hate them for hoodwinking you. And in you r mind destroy all jewish power. When you see they are low iq low strentgh corrupt effete, you will son find a new world where the jews are nothing as they should be

CTG_Sweden's picture






"[- - -] They've also skyrocketed because the Fed and other central banks are directly buying stocks.[- - -]"






My comments:




You probably meant "they've also skyrocketed because central banks other than Fed are directly buying stocks.[- - -]"?

Is the Federal Reserve really entitled to actually buy stock?

AGuy's picture

"Is the Federal Reserve really entitled to actually buy stock?"

The Fed is definately indirectly buying stocks by making the cost to borrow money at next to nothing. Company XZY refinances existing debt and uses the savings on interest payments for buybacks, or Company ABC borrows money to buy back it stock to allow insiders to cash out there stock options. Three: Company POE invests is stocks because the yeilds on bonds are zero. Company MBS sells a boat load of worthless MBS to the Fed which then turns and uses the cash to by stocks. There are probably a dozen more ways the Fed contributes to stock purchases.



CTG_Sweden's picture


But that was not the problem i pointed to.

Everybody who reads Zerohedge for a week know that the Federal Reserve enables others to buy stock at higher prices than in the past.

The problem is that GW´s wording may reduce his credibility.

ebworthen's picture


Dude, using up all that white space is as bad as typing in all caps. 

The FED does whatever it wants, it is a loose cannon manned by inept scurvy and syphilis ridden sailors.