Aggregate Net Stock Buybacks and Future Stock Market Returns

Is aggregate net U.S. public company stock buyback activity a useful predictor of U.S. stock market return? To investigate, we relate the quarterly FRED Security Repurchase Agreements; Nonfinancial Corporate Business series (buybacks) to quarterly S&P 500 Index (SP500) returns. This FRED series tracks dollar values of aggregate net stock buybacks by nonfinancial corporations. Specifically, we look at:

• Correlations between the quarterly 4-quarter change (to suppress volatility and seasonality) in buybacks and quarterly SP500 return for various lead-lag relationships.
• Average SP500 returns next quarter and two quarters hence by ranked fifth (quintile) of quarterly changes in buybacks.

Using quarterly buyback amounts since March 1964 (the first non-zero entry) and quarterly SP500 levels since December 1963, we find that: (more…)