Corporate share buybacks could ease Wall Street volatility

US stocks have been volatile in recent weeks, posting their worst start to the year since 1939.

Between the war in Ukraine, decades of high inflation and fears of recession, it has been difficult for investors to convince themselves to put more money on the market.

However, Goldman Sachs has a reminder for Wall Street: Hundreds of billions of dollars in support that can help alleviate the angst are on the way.

Ahead of earnings season, companies faced restrictions on buying back their own shares, weighing on the biggest source of demand for US stocks.

Now, with many companies reporting profits, they can re-enter full buy mode.

This could trigger a flurry of money in the market. US companies have authorized more than $400 billion in share buybacks so far this year, according to Goldman Sachs.

This is 22% more than the record level seen last year.

Although the economic environment has become more challenging, companies are still increasing profits at a healthy pace and accumulating large reserves that can be leveraged to reward shareholders.

“Solid earnings growth (+5%) and large cash balances among S&P 500 companies will support continued growth in buybacks,” said analysts at Goldman Sachs.

The company predicts that S&P 500 buybacks will grow 12% this year.

In earnings calls so far this quarter, buybacks have been a hot topic, especially from tech companies.

Apple has authorized an additional $90 billion in share buybacks “given the continued confidence we have in our business now and in the future.”

Google’s Alphabet has approved another $70 billion in buybacks.

The oil sector, buoyed by rising energy prices, is also stepping up share buyback plans.

ExxonMobil tripled the size of its buyback program last week. It now expects to buy back $30 billion worth of shares by 2023.

BP reported an extra $2.5 billion in buybacks on Tuesday. More on BP and oil industry earnings below.

This does not mean that all these buybacks will be executed.

JPMorgan Chase, which announced a new $30 billion share buyback program last month, stressed that it is not locked in.

“It’s just a sign that we want to have that capability and that flexibility,” said Jeremy Barnum, the company’s chief financial officer. “But that doesn’t say much about how much we’re planning to do in the short term.”

Buybacks are politically controversial.

US President Joe Biden wants to limit them and encourage companies to share their wealth with other stakeholders such as employees.

But for investors, the ongoing wave of buybacks could provide a boost, supporting share prices and indicating that companies generally feel good about the economic outlook despite a long list of unknowns.