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Dow Flat-Lines as Stock Buybacks Provide False Sense of Security

Last Updated September 23, 2020 12:49 PM
Sam Bourgi
Last Updated September 23, 2020 12:49 PM

The Dow and broader U.S. stock market traded mixed on Wednesday despite news that the United States and China are eager to bury the hatchet on their nearly yearlong trade dispute.

Dow Loses Luster; S&P 500 Follows

All of Wall Street’s major indexes traded in positive territory through the early afternoon session, reflecting a positive pre-market for Dow futures. However, they would eventually diverge as health care, consumer staples and utilities fell.

The Dow Jones Industrial Average declined 11.04 points, or 0.04%, to 26,536.82. The DJIA was up by as much as 112 points earlier in the day.

Dow Jones
Dow Jones Industrial Average gives up triple-digit gains, heads for disappointing close. | Source: Yahoo Finance.

A strong performance in the technology sector propelled the Nasdaq Composite Index higher. The benchmark rallied 0.3% to 7,909.97.

The broad S&P 500 Index of large-cap stocks gave back gains and traded down 0.1% at 2,913.78. The aforementioned utilities, consumer staples and health care sectors were the biggest drags on growth, offsetting strong gains for technology and energy shares.

Stock Buybacks Provide False Sense of Security

Wall Street is clinging near record highs at a time when global equity markets are shrinking. The reason: stock buybacks, according to Citigroup.

Robert Buckland, a managing director at Citi Research, told CNBC  on Tuesday that buybacks have been ramping up “at a time when investors have generally been suspicious of equities through most of this bull market.”

He added:

“Really, the main marginal buyer of the public equity asset class has been companies, not your regular investor.”

Just last month, Hacked reported that U.S. equity values  would be much smaller without the massive influx of share buybacks since 2011. Buybacks have equaled $3.5 trillion over the past eight years and without them, the S&P 500 Index would be 19% lower, according to Ned Davis Research.

After a dismal end to 2018, the U.S. stock market through April rounded out its best start to a year since 1998. A volatile May has given rise to a stellar rebound in June as traders look to the Federal Reserve to implement a new round of low-rate stimulus.

The Fed is widely expected to cut interest rates after its next meeting on July 30-31.

Click here for a real-time Dow Jones Industrial Average (DJIA) price chart