(Reuters) – U.S. companies’ purchases of domestic equities through more stock buybacks and corporate acquisitions will hit a six-year high of $625 billion this year, about as much as mutual funds and pension houses will offload, Goldman Sachs said.
“A surge in share buybacks and continued growth in cash mergers and acquisitions (M&A) will be the primary drivers of corporate equity demand,” Cormac Conners, U.S. equity strategist at Goldman, said in a note dated March 21.
Earlier this month, the Wall Street bank said it expects S&P 500 companies’ share repurchases to jump 13% to $925 billion this year, and then top $1 trillion next year.
Goldman cautioned that equity issuances this year will offset some of the purchases.
However, a much bigger offset, it estimated, would come via mutual funds and pension funds selling $300 billion and $325 billion of stocks, respectively, on a net basis.
The outflows in mutual funds will come as investors flock to passive index funds and exchange-traded funds (ETFs), from actively managed ones, while pension funds will rotate capital towards lower-risk assets such as bonds, Conners said.
Moreover, the Presidential elections in November, the brokerage estimated, will lead to foreign investors offloading $50 billion worth of U.S. stocks this year, in stark contrast to last year when they bought stocks worth $179 billion.
“The U.S. is the global safe haven … However, domestic uncertainty is likely to rise in conjunction with the Presidential election later this year,” Conners said.
Besides corporates themselves, U.S. households will be the other group who will be net buyers of domestic stocks — worth $100 billion — this year, reversing course from being net sellers in 2023, the brokerage said.
The record $3.8 trillion households own in money market assets means they have ample funds, Conners said, but cautioned that the continuing allure of credit and elevated equity allocations could act as dampeners.
(Reporting by Roshan Abraham and Siddarth S in Bengaluru; Editing by Janane Venkatraman and Savio D’Souza)
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