Corporate America is gorging itself on the $US1.5 trillion in Trump tax cuts, spending record amounts on buybacks, dividends and takeovers – and in doing so keeping Wall Street (and through it, global markets) buoyant and staving off a selling surge that seems to be lurking in the background.
The wastage of the Trump tax cuts by corporate America has reached new highs, according to the second quarter update by financial research group, Trim Tabs which found buybacks hit an astounding record of just on $US437 billion, topping the previous record set in the first quarter of $US242 billion.
That means corporate America has so far spent a total of $US679 billion in six months or more than $US112 a month. Included in the six months was the all time high for a month – $US173.6 billion in May.
In addition to the buyback surge, companies issued a record $US111.6 billion in dividends during the second quarter, bringing the 2018 total to $US220.8 billion, up 7.8% increase over the same period a year ago, according to a separate report from Howard Silverblatt, senior index analyst at S&P Dow Jones indices.
Mergers and Acquisitions are surging, with dollar volume for the three months ending May 31 at $US726.3 billion, more than doubling the same period in 2018, FactSet, another financial research firm reported last week.
Nike and Walgreens Boots Alliance led the most recent surge in buybacks, with $US15 billion and $US10 billion in late June.
A total of 63 companies announced buybacks of $US1 billion or more, 31 in June alone. June’s buybacks nicely offset the $US23.7 billion outflow from stock market-focused funds in the same month, which was also a new record.
For the June quarter, June’s record outflow brought global net equity outflows from share related funds to $US20.2 billion, the worst performance since the September quarter of 2016. The outflow was particularly strong from mutual funds, which lost nearly $53 billion in the quarter – meaning mostly retail investors are nervous about the markets.
US analysts point out that this frenetic activity is keeping Wall Street afloat – buybacks and takeovers are supporting share prices and the record dividend flows is helping finance them and make the deals look better than they are. They are masking a solid outflow of money from equity funds of all types.
The surge in buybacks, dividends and bids and deals has helped the S&P 500 index, the benchmark global measure for Wall Street, to survive – just – a 1.6% slide in the March quarter became a 3% rise in the three months to June as buybacks surged to a record high as did dividends and mergers and acquisitions.
In more ways than one, Trump’s tax cuts have protected Wall Street, made the corporate and global elite (including Trump) richer and made the rest country and the nation generally poorer, now and in the future as the sugar hit from the buybacks dividends and deals fades and America is stuck with a record sized deficit and escalating debt.
Trim Tabs summed up the benefits – “Corporate America’s actions suggest that most of the benefits of the corporate tax cut will flow to investors in general and top corporate executives in particular,” TrimTabs noted, adding that most senior executives have large stock-based compensation packages, which benefit from using shareholders’ money to reduce the number of shares the company has on issue, boosting the price per share.
TrimTabs drew a contrast to the relatively small distributions of tax benefits to employees, estimating that the sum committed to buybacks last quarter “could fund 6.8 million $US1,000 bonus cheques to workers every single trading day”.
Imagine that as a tax cut and spending surge benefitting the entire economy.
