For a better part of two years, the stock market was in an undeniable rise in trend, and investors did not have to dig too deep to discover the catalysts behind this decisive decision above.
A confluence of factors, including an American economy resilient, a reduction in the inflation rate in force (compared to a peak of more than 9%) and the better business profits have lifted the Industrial average Dow Jones,, S&P 500 (^ GSPC 2.13%))And Nasdaq Composite to many records of record closing.
But among this list of laundry catalysts, none has shone more than the climb Artificial Intelligence (AI). With AI, software and systems have the capacity to reason and act by itself, and can become more effective in their assigned tasks, as well as learning new skills over time.
Image source: Getty Images.
According to a report published by PwC (Prize), the AI revolution is expected to increase global productivity by $ 6.6 billion in 2030, as well as to provide an advantage of $ 9.1 billions of consumption on the consumption. Quite, AI should increase the global gross domestic product by $ 15.7 billionswhich is a tart large enough to excite investors.
Unsurprisingly, companies invest aggressively in the infrastructure and software solutions of the AI-Data Center to obtain first place advantages. Many of the “magnifiment seven” are Spend tens of billions of dollars to buy graphics processing units (GPUS) which act as the brain of their data centers to compare.
However, despite the most influential companies in Wall Street, putting large dollars to work on the evolution of AI, there is another trend to overshadow it in terms of aggregated expenses. During the next decade, S&P 500 companies are on the pace of spending more than 10 dollars – that is to say on average more than 1 dollars per year – on another burning investment.
S&P 500 companies should spend 1 dollar (or more) dollars per year on this trend
What could be warmer than the AI revolution, in terms of business expenditure? Does not look any further than (drum roll) corporate redemptions!
Between 2011 and 2017, S&P 500 companies bought between $ 413 billion and $ 592 billion in their shares each year, which corresponds to an average of around 100 to 150 billion dollars per quarter. But things have changed significantly once Donald Trump took office for his first mandate as president.
The flagship law of tax reductions and jobs (TCJA) of Trump, which was promulgated in December 2017, reduced the rate of advanced marginal tax by 35% to 21%. This represents the tax rate of the lowest companies since 1939, and it has put more money in the chests of proven public companies than they do not know what to do.
The exclusion of uncertainties linked to the COVVI-19 pandemic and the resulting locking, the companies S&P 500 bought a collective of $ 815 billion at $ 950 billion in their own actions on an annual basis since TCJA has entered into force. President Trump suggested that he would like See the marginal tax rate of marginal companies reduced by 29% For companies that make their products in America.
Based on estimates of Goldman SachsS&P 500 share buybacks are expected to reach a record of $ 1.075 Billion in 2025. TCJA rendering the tax rate of permanent companies and Trump Holding Office for the next four years, the trajectory is for share buybacks to gradually increase.
Companies generally undertake share buybacks for three reasons. First, buyouts help gradually increase ownership of existing shareholders, which encourages long -term investment. This is one of the main reasons Warren Buffett spent nearly $ 78 billion in shareholdings of Berkshire Hathaway stock since mid-2018.
Second, he sends a strong message to Wall Street and investors that the Board of Directors and / or the Management Team always considers the actions of their business as a good deal.
Third, and perhaps above all, companies with a stable or growing net income that regularly undertakes redemptions can increase their profit by action (EPS) And make their stock more fundamentally attractive for value -oriented investors. The growth in profits associated with share buybacks has played a key role in the current rally of the Haussier market.
Image source: Getty Images.
Investment greater than $ 10 billion in Wall Street may not be enough to prevent a stock market crash
While all signs continue to point to businesses – in particular S&P 500 companies – putting a lot of their capital to operate via buyouts during the next decade, share buybacks alone are alone It is unlikely that the mask of a historically dear stock market.
Although “value” is an entirely subjective term that can go from one investor to another, most investors tend to make a lot of confidence in the traditional Price / benefit ratio (p / e). The P / E ratio is reached by dividing the course of the action of a company by its EPS from the end of 12 months. Although this assessment tool authorizes rapid assessments of mature companies, it is not particularly useful for growth actions or when shock events and recession occur.
What was a much more precise evaluation measure for Wall Street, it is the P / E Shiller ratio of the S&P 500, which is also known as the P / E ratio cyclically adjusted, or CAPE ratio. This evaluation measure, which was tested in January 1871, is based on average BPA adjusted by inflation of previous 10 years. This ensures that short -term shock events cannot distort reading.
From the closing bell of March 7, the S & P 500 Shiller P / E ratio was 36.34, which represents more than double its average of 154 years of 17.21. In addition, this is the highest third reading during a continuous bull market.
Ratio S&P 500 Shiller Cape data by Ycharts.
Including the present, there was only Six events since 1871 where the Shiller P / E has surmounted 30And the previous five cases all saw the S&P 500 lose at least 20% of its value. Although the P / E Shiller is not a synchronization tool, it has an impeccable history to prefigure the great drawback of actions.
Action buybacks can only extend evaluation premiums to Wall Street so far. For example, Apple (Aapl 1.82%)) has represented $ 695.3 billion Outside the S&P 500, 7.11 Billions of dollars of cumulative redemptions during the decade of leakage (until September 30, 2024), on the basis of data from S&P Global.
Despite spending more in shareholdings than any other public enterprise, Apple’s BPA has been stable in the past two years. Over that time, its net incomes has fauln from $ 99.8 Billion in fiscal 2022 (Apple’s fiscal year ends in latember), to $ 97 Billion in fiscal 2023, and finly $ 93.7 Billion in fiscal 2024. Apple is the ideal Example of the promise and limitations associated with the buyouts of aggressive action.
Even investments of 10 billion $ 10 billion in Wall Street in the next decade cannot allow it a lower possible movement.