Regarding balance sheet liquidity ratios, it is not gross repurchases but net repurchases (gross repurchases minus share issuances) that matter.
Case Study: Microsoft Net Repurchases
For example, over the last 12 months, Microsoft had gross repurchases of $17.2 billion and share issuances of $2 billion, resulting in net repurchases of $15.2 billion.
In the updated data for the last 12 months, net buybacks totaled $681 billion for U.S. non-financial companies and $703 billion for all non-financial companies. The highest level was recorded in Q1 2019 at $516 billion, based on company reports.
Projected Buybacks for 2024
In the first half of 2024 (H1 2024), net buybacks recorded a 41.6% year-over-year growth for all companies but were 1.3% lower than in 2022.
Net repurchases in 2024 are $373 billion, and potential repurchases by the end of 2024 could reach up to $770 billion (over $800 billion for all companies excluding the financial sector).
Below are the estimated percentage changes in net buybacks for H1 2024 over one year, two years, and five years:
- Excluding commodity companies: +48.6% / -3.9% / +52.5%
- Excluding technology companies: +27.3% / -17.4% / +52.9%
- Excluding trade: +46.8% / +7.4% / +72.5%
- Excluding technology and trade: +34.5% / -6.4% / +66.9%
By sector, the percentage changes in net buybacks for H1 2024 over one year, two years, and five years are:
- Trade: -11.9% / -58.4% / -10.2%
- Medical: +17.3% / -26.3% / -10.3%
- Consumer sector: +43.9% / -5.5% / +94.9%
- Industrial and business: +148.5% / -4.4% / +93%
- Commodities and utilities sector: -7.2% / +40.8% / +955%
- Transportation & Communications: -29.2% / -27.8% / -22.3%
- Technology: +61.3% / +25.4% / +78.4%
Conclusion
Five of the seven sectors have been in significant negative territory over the past two years, despite capitalization growth of 50% to 60% during that period. With fewer buybacks, capitalization is higher — a strong indication that the market's rise is not due to an increase in buybacks from the low base of 2023.
If we combine all non-financial companies (up to $800 billion in 2024) with the financial sector ($130 – $140 billion), we get up to $930 billion in net buybacks at the upper bound — no more than a 1.6% net return relative to market capitalization.
Thus, net buybacks are not the dominant cause of market growth.