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Dow Avoids Third Loss in a Row as ‘Phony’ Buyback Rally Continues

Last Updated September 23, 2020 12:50 PM
Sam Bourgi
Last Updated September 23, 2020 12:50 PM


The Dow and broader U.S. stock market reversed losses on Thursday even as disappointing corporate earnings and sliding oil prices dragged on investor sentiment.

Dow Pares Losses; S&P 500, Nasdaq Advance

Wall Street’s major indexes traded lower for most of the session on Thursday, mirroring a tepid pre-market for Dow futures. They would eventually reverse course, with the Dow Jones Industrial Average inching up 3.12 points to finish at 27,222.97.

Dow Jones Industrial Average pares triple digit losses on Thursday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks gained 0.4% to 2,995.11. Gains were widespread, with consumer staples and financials leading the way higher.

Upside was limited by sharp declines elsewhere, as Netflix (NASDAQ:NFLX) dragged the communication sector sharply lower. The streaming giant plunged 10.3% after reporting its first quarterly drop in domestic paid revenues since 2011.

Energy stocks were also on the defensive after oil prices fell to their lowest levels in a month. They would eventually pare losses to finish flat.

Meanwhile, the technology-focused Nasdaq Composite Index advanced 0.3% to finish at 8,207.24.

Share Buybacks Doing Most of the Work

dow jones industrial average
Wall Street’s bull market isn’t what it appears to be. | Source: REUTERS / Brendan McDermid

Without interest rate cuts stimulating the conversation, investors are finding little reason to bid up stocks. Lucky for them, corporate stock buybacks are doing much of the heavy lifting.

Buybacks have a strong tendency of improving share performance both short and long term, which is probably why more companies are employing such practices, according to new research from J.P. Morgan.

“Stocks of companies that buy back their shares tend to outperform both short and long term, and we estimate over 4% outperformance for high-buyback companies in the U.S. and Europe over the past 20 and 25 years,” the U.S. mega bank said in its report, as per CNBC .

Net buybacks have totalled $400 billion this year, roughly half of the 2018 gross figure.

As Hacked.com reported back in May, the S&P 500 Index  would likely be around 19% lower if it wasn’t for buybacks. The practice of buying back shares has stoked controversy in Congress, with both Democrats and Republicans vowing to limit such behavior. Lawmakers on both sides of the aisle argue that repurchases merely inflate stock values, which allows corporate executives to pad their bonuses.

Click here for a real-time Dow Jones Industrial Average price chart.