Share buybacks by S&P 500 companies could hit $1 trillion in 2019, surpassing 2018's record $800 billion, as strong cash positions allow companies to reward shareholders even as earnings growth returns to normalized levels, according to S&P Dow Jones Indices.

Aided by bumper profits and President Donald Trump's $1.5 trillion of tax cuts, U.S. corporates were awash with cash in 2018. And while some of that capital was reinvested, as the Trump administration claimed it would be, much of it was returned to shareholders in the form of buybacks and dividends.

At $222.98 billion, the fourth quarter of 2018 was a record for buybacks, taking the total for the year to $806.41 billion — a 55.6% increase on the 2017 figure. Companies got more bang for their buck in the fourth quarter as stocks were bought at an average of 5.3% less than the previous quarter as the S&P 500 fell 14% in the period.

Even after spending unprecedented amounts on buybacks in 2018, S&P 500 companies, minus financials, transportations, real estate and utilities, had $1.39 trillion of cash on hand at the end of the year. While that is down from the all-time high $1.64 trillion at the end of 2017, it is still "enough for them to do anything they want," according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

"We think 2019 will be an increase towards that $1 trillion number," Silverblatt said in an interview. "The underlying support is there from the balance sheet. Debt, even though it's higher, it's lower expense; cash flow is strong and covering those numbers, and companies have the ability to, not just do buybacks and dividends, they can do M&A and hiring."

Record bull run

Another record year for buybacks could help the S&P 500 extend a 10-year bull run that started in March 2009 but has looked close to running out of steam at various points over the past six months. The index dropped 1.8% on March 22 on concern that the U.S. economy may be headed for recession.

The loss of the 2018 tax windfall combined with a weaker economic outlook suggests slower gains in profits, according to Nick Peters, portfolio manager at Fidelity International, who expects 5% earnings growth in 2019, down from 15.1% in the fourth quarter of 2018 and 21.8% in the third quarter, the most since 2011.

Those factors are making some investors more skeptical that buybacks will continue to surge. Eddie Perkin, chief equity investment officer at Eaton Vance, expects buybacks to go out of fashion in 2019. He argues that while companies will continue to buy back stock, 2018 was a standout year due to the tax bill, which, as well as boosting earnings and cash flow, incentivized the repatriation of cash held overseas.

"Buybacks tend to be seasonal as companies observe blackout periods around quarterly earnings results. During these blackout periods, the lack of corporate buyback activity can cause technical dislocations in share prices for a short period of time," Perkin said in an email.

He also pointed to rising political pressure that is "surprisingly" coming from both sides of the aisle. Democrat senators Chuck Schumer and Bernie Sanders used an op-ed in The New York Times to blast the "explosion of stock buybacks," while Republican Senator Marco Rubio has proposed a rule change to effectively treat a capital gain from buybacks as a taxable dividend.

Silverblatt agreed that earnings growth may be back down to low single digits, but that ample cash and a need to meet the decline in earnings might not be enough to put off companies from investing in their own stock as shareholders expect a windfall. "There are a lot of options in the market for employees. They're going to cover that; they cover that even in the bad times. Shareholders want a piece of the action, institutions are pressuring companies big time."

The top 20 companies accounted for 42.2% of the buybacks in 2018 with Apple Inc. leading the way. The $10.11 billion of shares repurchased by Apple in the October-December period took its 2018 total to $74.25 billion, a long way ahead of second-placed Oracle Corp. ($29.31 billion), Wells Fargo & Co. ($20.96 billion) and Microsoft Corp. ($16.30 billion).

The IT sector accounted for $278.53 billion of buybacks in 2018, more than double the $118.85 billion it racked up in 2017, and well out in front of financials ($150.05 billion) and healthcare ($108.69 billion).