However, Silverblatt’s data also run counter to the notion that companies are just piling into buybacks and dividends and not investing in their companies.
Capital expenditures are running 13.9 percent higher than the previous quarter and 15.5 percent ahead of the same period a year ago. In fact, Silverblatt said the trend, through the first 63.3 percent of companies reporting, could approach the record level of capex in Q4 of 2016.
Wall Street has come to depend on buybacks along with organic growth for the nearly 10-year-old bull market. While investors have taken about $232 billion out of mutual and exchange-traded equity funds over the past three years, companies have pumped in $1.8 trillion through repurchases, according to Nick Colas, co-founder of Data Trek Research.
“Any real regulation on buybacks, either through labor conditions or tax code, is a negative for valuations and stock prices,” Colas said in a recent note to clients.
Despite their current status as low-hanging political fruit, Colas said buybacks can be “better than the alternatives,” such as big mergers that often don’t work out well for workers, or companies moving operations overseas to escape the labor regulations proposed in a Schumer-Sanders type bill.
“Stock buybacks are deeply cyclical in nature, so the fact that their size has finally drawn DC’s attention is a worrying sign of a corporate profit top,” Colas wrote. “Legislation on financial issues is almost always reactive, not proactive.”