The purchasing power of US companies should give the stock market a boost as soon as next week, and some stocks could see a big boost, according to Goldman Sachs. A Wall Street firm has estimated that 75% of S&P 500 companies will be out of blackout windows by the end of next week. Companies are prohibited from making discretionary buybacks of their shares in the weeks leading up to earnings reports. “With the announcement of a large dividend, some investors wondered whether reopening the buyback window would provide a near-term boost for shares,” Goldman said in a note. Large stock buybacks tend to enjoy their stock in the period after the darkened windows end. Since 1995, Goldman’s buyback basket, made up of the stocks with the largest buyback returns in the past 12 months, has outperformed the S&P 500 by an average of 0.8 percentage points in the five weeks following the end of the blackout. Companies featured in the Goldman buyback basket included MGM Resorts, Charter Communications, Constellation Brands and Marathon Petroleum. To be sure, Goldman said the boost from buybacks could be particularly small this time around as companies tighten their fiscal constraints amid the economic downturn. Goldman said reported buybacks of S&P 500 companies in the first quarter fell 21% year over year. “The outlook for corporate buybacks is less favorable and the slowdown has already begun,” Goldman Sachs said in a note.
Goldman says buying power will give stocks a boost as soon as next week, especially this one