Investors Fleeing Tech, Record Buybacks Keeping the Tech Stocks Higher
Back in October 2018, technology sector slumped as the stocks of the likes of Netflix and Amazon dropped 20 percent that month. Earlier that year, these tech stocks were the best performers from where traders continued to flee.
The price of the tech stocks like Facebook, Amazon, Netflix, and Google after the hitting a low in late December, has been yet again riding upwards. However, it might not be as much of a growth driven by investors rather through buybacks.
Stock buyback basically refers to the repurchasing of the stocks by the company itself that issued them.
With these buybacks, the company can purchase stocks on the open market or directly from its shareholders as well. In recent decades, the share buyback has actually overtaken dividends as a preferred way to return cash to the shareholders.
In 2018, tech companies have been leading the spending in the buybacks. However, these buybacks are not only running rampant in the tech industry but in the overall market.
American corporations are buying back their shares at an extraordinary rate that allows them to return cash to shareholders while brightening their financial performance and boost their share prices.
It has also been stated that companies buying their own shares is what is keeping the market afloat.
Despite the political backlash against this tactic where many Democrats and some Republican have also expressed their concerns, there has been a steady drumbeat of the buyback. In 2018, Corporate America had announced $1 trillion of stock buybacks.
“Corporate boardrooms have become obsessed with maximizing only shareholder earnings to the detriment of workers and the long-term strength of their companies,” wrote Senators Bernie Sanders and Chuck Schumer in a New York Times Op-Ed earlier last month.
Before the 1980s, buying back shares with corporate money was considered illegal that might open up charges of manipulation of share price on a company. However, in 1982, the Securities and Exchange Commission (SEC) adopted a rule that allowed repurchases of shares, provided they follow certain rules.
Late last month, Bitcoin Poposnet, Max Keiser called out Warren Buffett who in the annual letter to the shareholders talked about Berkshire buying back its own shares, “It’s pure fraud. Its sole purpose is to commit accounting fraud for the benefit of insiders.”
The stock market rally might have everything except for investors, as NY Times reported, but the crypto space is certainly gaining the attention of investors. From small, medium to big giants, this industry has the factors that appeal to different segments. This space is slowly growing as the big players like Fidelity and Bakkt enters the market and lending operations register record growth.