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Dec 14, 2018

Markets: Companies Ramp Up Buybacks as Market Swoon Continues.

The Wall Street Journal.
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Happy Friday. Amrith Ramkumar here with The Wall Street Journal, setting up today's trading as we wrap up another choppy week for markets. 
Adobe and Costco are down premarket after earnings, with U.S. futures falling as major indexes set to erase most of the week's advance. We'll get monthly figures on retail sales shortly.
And I look at a flurry of corporate buyback announcements so far this month as companies react to the stock market's recent slide. 

Markets in a Minute

Markets Data

Overnight Developments

Companies Turn to Buybacks Amid Stock Rout

A handful of large firms have risen recently after repurchase pledges.
Shares of several U.S. companies have rallied following recent announcements of increased share repurchases, a welcome development for investors bruised by recent market volatility.
Facebook, Mastercard, Lowe’s, AbbVie and United Rentals are among the companies that have unveiled bigger or resumed stock buybacks this month as the S&P 500 heads toward its worst quarter since 2011.
Buybacks make corporate profits appear stronger by lowering the number of shares outstanding, buoying per-share earnings even without overall profit growth.
Corporate demand can also lead to stock-price gains.
Analysts credit record buybacks for helping lift major indexes during the latest leg of the bull market. S&P 500 companies spent a record amount on buybacks in the third quarter, with the total at roughly $200 billion, according to S&P Dow Jones Indices.
“Corporations have been a large, incremental buyer. That’s had a very large impact on equity market returns over the last few years,” said Wasif Latif, head of global multiasset investing at USAA Asset Management. “It seems like that large upward pressure is going to continue to be there.”
Facebook has risen 5.5% this week after the social-media company said it approved a plan to boost its buyback program by $9 billion. The advance has helped the company pare some of its recent slide, though anxiety about slowing user growth and heightened regulations has still sent Facebook’s stock down 18% for 2018.
Lowe’s and United Rentals have also trimmed some of their year-to-date declines since their buyback announcements earlier this week. Mastercard shares have fallen since the firm’s latest repurchase commitment amid changes to the credit-card company’s fee structure for merchants. The stock is still up 31% this year.

And drugmaker AbbVie rebounded from its lows of the day Thursday after it revealed an increase to its buyback program during afternoon trading.
Although analysts say buybacks can give shares a short-term boost, some are concerned that companies prioritizing spending on repurchases rather than investing in their businesses could contribute to an expected pullback in economic growth.
Some companies have cited uncertainty about tariffs as a factor affecting spending decisions, slowing down the pace of spending on equipment, factories and other capital goods even with the U.S. economy doing better than it has in years by many measures.
“That still hasn’t been sustained enough to give corporations the confidence to invest in real projects, so they continue to do stock buybacks,” Mr. Latif said.
Are corporate stock buybacks making you feel better or worse about the stock market? Let the author know your thoughts at amrith.ramkumar@wsj.com. Emailed comments may be edited before publication in future newsletters, and please make sure to include your name and location.

Market Facts

  • Natural-gas inventories fell by 77 billion cubic feet in the week ended Dec. 7, government data showed Thursday, less than analyst forecasts for a 85 bcf drain but still enough to leave stockpiles in the U.S. about 20% below their five-year average. Natural gas edged down 0.3% Thursday but is still up 40% for the year and one of the market's best-performing assets in 2018.
     
  • The S&P 500 has moved less than 1% on a closing basis in four consecutive sessions for the first time since Oct. 9.
     
  • Shares of Canadian cannabis company Tilray have fallen 25% to $75.52 this week, bringing them 65% below their September peak on a closing basis. The stock is 75% off its intraday high of $300.

Key Events

European Union leaders meet to discuss Brexit, budget, migration and other issues.
U.S. retail sales for November, out at 8:30 a.m. ET, are expected to rise 0.1% from the prior month.
U.S. industrial production for November, scheduled for 9:15 a.m., is expected to rise 0.3% from a month earlier.
Markit's U.S. flash manufacturing index for December, slated for 9:45 a.m., is expected to inch down to 55.0 from 55.3 at the end of November. The flash services index is expected to slip to 54.5 from 54.7.
The Baker-Hughes rig count will be released at 1 p.m.

Must Reads

Once the most valuable U.S. company, General Electric’s complex restructuring has raised questions about the firm’s true worth with investors pummeling its stock and bond prices recently. PHOTO: RICHARD DREW/ASSOCIATED PRESS
GE shares rebounded after an upgrade from JPMorgan. Battered shares of General Electric flirted with their best day since 2009 and rose 7% after one of the company’s biggest skeptics said he thought the stock was near a bottom.
What does $3 trillion buy in Europe? Higher inflation and uneven growth. The European Central Bank’s bond-buying program, which it said Thursday it would wind down this month, weakened the euro and lifted prices, but its economic effects were modest.
BlackRock and Microsoft are building a retirement-planning platform. The companies have agreed to develop a platform that will provide digital financial-planning tools and new BlackRock funds offering guaranteed retirement income to employees through their workplace saving plans.
Saudi Arabia pumped up its stock market after bad news, including the Khashoggi murder. The government of Saudi Crown Prince Mohammed bin Salman has spent billions to counter selloffs in recent months following the killing of a dissident journalist, a corruption crackdown and a showdown with Qatar.
Economists scaled back their expectations for Fed rate increases. Private economists in a new Wall Street Journal survey dialed back their median forecast for 2019 rate rises, calling for two next year rather than the three they expected when asked last month.

What We've Heard on the Street

“The fate of Brexit increasingly looks like it will be decided dangerously close to the March 29 deadline—too close to give businesses time to plan for anything but the worst.”
—Heard on the Street columnist Jon Sindreu

Stocks to Watch

Adobe Systems: The software company missed on earnings in its latest quarter, though revenue grew more than Wall Street expected.
Costco: The warehouse retailer reported weaker-than-expected quarterly sales.
Johnson & Johnson: The health-care products company is being drawn into a battle over how much freedom shareholders have to sue companies.
Under Armour: Shares of the athletic-apparel company have slumped 22% in the last four days, including a 10.4% slide Wednesday after it warned of slowing growth and another 5.2% drop Thursday.

Source: WSJ

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