Artificial Gains have Fueled a Bull Market for Decades

How 40 years of corporate greed normalized the practice of stock buybacks

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Since 2010, corporations have repurchased an accumulated total of $5 trillion in stock — this is three times the total student debt and two times what we need to repave the country’s crumbling infrastructure, according to the American Society of Civil Engineers.

Goldman Sachs has predicted that stock buybacks will hit an all-time high of $1 trillion by the end of 2022— this is a staggering 12% higher than the previous year. Meanwhile, the country faces an impending recession and inflation is at the highest it’s been in a generation.

To make it worse, corporations are taking advantage of inflation by boosting the prices of their products and services, and in turn, using these obscene profits to further boost the value of their stock. In 2021, corporate earnings rose to levels not seen since 1950, and while most Americans are struggling with the current 9% inflation rate, profit margins have increased more than 30%.

For the past four decades, companies have regularly repurchased staggering amounts of outstanding shares, which has fueled a significant amount of market growth on the stock exchange. Many skeptics have warned that buybacks are the only thing keeping the stock market afloat, and it could lead to a more severe bear market when this house of cards ultimately begins to falter.

The main purpose for repurchasing stock is to reduce the amount of shares available to the public, which in turn boosts the average earnings per share (EPS). Since analysts gauge a company’s performance using financial ratios, this allows the EPS to exceed quarterly expectations. So if a company buys back its stock without actually increasing their revenue, the amount of earnings per share increases.

These boosts are more akin to a sugar rush because while a company’s share price might see a huge jump, the book value stays the same. Less savvy investors also tend to pour their savings into these stocks, thinking they will ride the money wave. But after the ephemeral boost fades, many retail investors end up losing on their investment — almost like gambling.