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Share buybacks by S&P 500 companies to halve in 2020 – Goldman Sachs

Share repurchases by S&P 500 constituents will fall by 50% to $371 billion in 2020 as companies prioritize liquidity in the wake of the coronavirus pandemic, according to a report by Goldman Sachs.

Analysts at the U.S. investment bank estimate buybacks to be flat year over year in the first quarter, followed by a 75% fall in the second quarter. Repurchases are expected to decline 70% and 65% in the third and fourth quarters, respectively. An additional 40% drop in buybacks in the first quarter of 2021 will lead to a 12-month repurchase volume that would be 65% below the 2018 peak, Goldman said.

Since the beginning of March, 51 S&P 500 companies making up 27% of 2019 aggregate buybacks suspended their buyback programs. Along with carriers including United Airlines Holdings Inc., Delta Air Lines Inc., Southwest Airlines Co. and Alaska Air Group Inc., many retailers, hoteliers and cruise operators terminated their programs, analysts said.

Furthermore, eight U.S. banks announced they would hold off their repurchase programs through at least the second quarter and utilize the capital for supporting the global economy.

In the semiconductor industry, many companies are expected to join Intel Corp. and Broadcom Inc. in withdrawing buybacks as investors signaled they would prefer companies strengthen balance sheets rather than repurchase shares. Healthcare companies are also forecast to follow suit despite significant outstanding authorizations, Goldman said.

Buybacks may be affected by the recent Coronavirus Aid, Relief, and Economic Security Act, which specifies that companies taking assistance from the Treasury may not repurchase stock or pay a dividend until 12 months following the loan repayment. While the bill explicitly provides for airlines, air cargo and aerospace companies, Goldman expects the provision to apply to all the entities seeking aid.

A dip in share buybacks will considerably impact the equity market, analysts said. "Reduced buyback spending means less downside support for equity prices since fewer firms will step in to repurchase shares if their stock prices fall," and would also slow EPS growth, they said.

S&P 500 dividends will fall by 25% in the year as companies rush to increase liquidity, Goldman said in the report.