NEXT FRIDAY’S MAY CPI
Will the anticipated (or wished for) inflation downshift start in May? The consensus is +0.7% MoM with core CPI +0.5%.

• JP Morgan says that energy prices still rising and services price pressures
  still building, a downshift now looks unlikely. JPM expects +0.8%.
• S&P Global’s Manufacturing PMI: “The rate of cost inflation accelerated to the fastest in six months, with firms passing on higher expenses to customers through a near-record rise in output charges.” Prices of durable goods declined 0.9% MoM in March and edged up 0.05% in April. They are still up 14.0% YoY. Non-durables prices declined 0.2% in April but energy prices rose in May. Non-durables prices were up 12.8% YoY in April.
• S&P Global’s Services PMI: “Service providers passed on higher costs to their clients through another marked monthly uptick in output charges during May. That said, the rate of selling price inflation slowed from April’s record pace as a limited number of firms mentioned concessions made to customers.” CPI Services was up 0.76% MoM in April, +5.4% YoY.

Rising productivity was supposed to restrain companies from passing on their cost increases but that’s not happening as I wrote yesterday. Here’s David Rosenberg’s take:

Productivity has contracted a rare two of the past three quarters and at a -1.8% annual rate over this interval. In the post-WWII era, this has only happened in 1982, 1974, and 1960. All recessions. The level of productivity is down to a seven-quarter low, and what has happened here is that the +4.7% annualized increase in labor input (on a three-quarter percent change basis) has far outpaced the corresponding +2.8% expansion in real output.

Unit labor costs are skyrocketing:

While other costs keep rising:

Goldman Again Hikes Oil Price Target, Now Sees Barrel Hitting $140, Up From $125

Oil’s structural deficit therefore remains unresolved, with in fact an even tighter oil market through April than we had expected. Supply remains inelastic to higher prices with core-OPEC (higher) and exempt countries (lower) production shifts broadly offsetting. On the demand side, the negative global growth impulse remains insufficient to rebalance inventories at current prices. As a result, we believe oil prices need to rally further to normalize the unsustainably low levels of global oil inventories, as well as OPEC and refining spare capacities.

Updating our supply and demand expectations, we now forecast that Brent prices will need to average $135/bbl in 2H22-1H23 (up $10/bbl vs. prior forecast) for inventories to finally normalize by late 2023, the binding constraint to prices in our view. This represents summer retail prices reaching levels normally associated with $160/bbl crude prices (due to strong refining utilization, gas prices and USD) to achieve the additional 0.5 mb/d of price-induced demand destruction required to rebalance the market next year in addition to (1) global GDP growth exc. China slowing to 2% yoy, (2) record output from Saudi/UAE/Iraq and (3) Iran/Venezuela/Libya production rising 1.3 mb/d.

World inventories keep sliding:

While U.S. inventories are scary low:

Bloomberg: “The rally in raw materials shows little sign of a letup, pushing the Bloomberg Commodity Spot Index to a record high. Crude is hovering around $120 a barrel, with natural gas, oil and wheat among the biggest movers this year.”

Rosie calculates that “the business implicit price deflator has boomed to a 7.3% annual rate these past three months (highest since the fourth quarter of 1981)”.

The ongoing consumer squeeze will soon be joined by the corporate margin squeeze.

• Wage Growth Diverges by State: Georgia at a Record and D.C. Is Flat

Speaking of consumer squeeze, this Bloomberg chart is truly amazing. Wage growth is still rather slow in highly populated areas such as CA and the Northeast states.

But inflation rates are not so dispersed: USA in April: +8.3%; West: +8.3%, Northeast: +7.2%.

May Sees Least Affordable Housing Market in 16 Years While Existing Mortgage Holders Gain Record $1.2 Trillion in Tappable Equity in Q1 2022

Today, the Data & Analytics division of Black Knight, Inc. (NYSE:BKI) released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage, real estate and public records datasets. While rising home prices and volatile interest rates continue to compound the affordability pressures in the housing market, the same dynamics have also served to increase the housing wealth of American mortgage holders by a significant margin. According to Black Knight Data & Analytics President Ben Graboske, tappable equity – the amount available for mortgage holders to borrow against while retaining a 20% equity stake in their homes – has reached yet another all-time high.

• The monthly principal and interest (P&I) payment on the average-priced home with 20% down is nearly $600 (+44%) more than it was at the start of the year and $865 (+79%) more than before the pandemic
• As of May 19, with 30-year mortgage rates at 5.25%, the share of median income required to make that P&I payment had climbed to 33.7%, just shy of the 34.1% high reached in July 2006
• While tightening affordability is hampering prospective homebuyers, the home price growth at the root of the issue continues to increase the housing wealth of current homeowners with mortgages
• U.S. mortgage holders saw their collective tappable equity – the amount available to borrow against while retaining at least a 20% equity stake in the home – increase by $1.2 trillion in Q1 2022 alone
• In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower

The squeeze has been sudden and brutal: Sharpest drop in house affordability on record (Axios):

Commercial Property Sales Slow as Rising Interest Rates Sink Deals The sector is showing the first signs of cooling in more than a year as higher borrowing costs lead some would-be buyers to back out.

Property sales were $39.4 billion in April, which was down 16% compared with the same month a year ago, according to MSCI Real Assets. The decline followed 13 consecutive months of increases. (…) In March, total commercial property sales had risen 57% from the same month a year before.

“To have it go from a very fast pace of growth the month before—the speed of that transition is shocking,” said Jim Costello, chief economist at MSCI Real Assets. A drop in sales can be an early indicator of stress in real-estate markets because prices are usually slower to change, he added. (…)

In some cases, investors are finding that with the increased cost to borrow, their near-term rate of return runs below the interest rate on their mortgage. Lenders, in turn, are now tightening their standards for more-speculative deals, brokers said.

In certain sectors, such as smaller industrial and retail real estate, prospective buyers that wrote letters of intent to purchase properties weeks ago are now dropping their bids because the cost to borrow has risen so quickly, said Joshua Campbell, a senior vice president at Stan Johnson Co., a commercial real-estate brokerage. (…)

“The pricing can’t be blind to changes in capital markets,” Mr. Neveloff said. (…) “It’s now turning into a buyer’s market,” Mr. Stimler said.

Global squeeze:

China’s consumers keep their wallets in lockdown as COVID curbs ease China’s retail sales shrank 11.1% in April from a year earlier, the biggest fall since the height of China’s first COVID outbreak two years ago that ravaged the city of Wuhan.

(…) China’s urban jobless rate rose to 6.1% in April, the highest since February 2020 and well above the government’s target ceiling of 5.5%. Some economists expect employment to worsen before it gets better, with graduates entering the workforce in record numbers. (…)

• UK shoppers cut spending by most since COVID lockdown in 2021 The British Retail Consortium (BRC) said total retail spending was 1.1% lower than a year earlier, the biggest fall since January last year and representing an acceleration from April’s 0.3% decline.

(…) The BRC said its ‘like-for-like’ retail sales measure, covering only outlets open in May 2021, showed a 1.5% annual fall in spending after a 1.7% contraction in April.

The figures are not adjusted for inflation – which hit 9.0% in April – which means the fall in volumes of goods purchased will have been much greater than the drop in money spent.

Data from Barclaycard, covering a broader range of spending, showed spending in May was up 9.3% from a year earlier, reflecting the rising cost of living and a bounce for travel and hospitality which were affected by restrictions last year.

Spending on essential items rose by 4.8%, pushed up by a nearly 25% leap for petrol and diesel which have soared in price. In response, consumers cut back on spending on digital content and subscriptions by nearly 6%.

Echoing the BRC data, Barclaycard said spending on furniture fell by 3.1% in May from April.

Spending at restaurants and pubs and bars fell by about 6% and 1% respectively during the month. (…)

• Italy statistics bureau cuts growth forecasts, warns of “strong downside risks”

Italy’s economy will grow by 2.8% this year, national statistics bureau ISTAT said on Tuesday, slashing a 4.7% projection made in December as high raw material prices and the war in Ukraine weigh on the outlook.

In its twice-yearly forecasting report, ISTAT projected that gross domestic product in the euro zone’s third largest economy will increase next year by 1.9%.

“The outlook for the coming months is marked by strong downside risks linked to further price rises, a decline in international trade and a rise in interest rates,” ISTAT said. (…)

• Australia raises rates by most in 22 years to battle surging inflation
• Chile’s central bank is set to deliver another rate increase in a bid to tackle surging inflation. Economists expect it’ll raise borrowing costs by 75 basis points to 9%. While smaller than the last hike, such a move would still push the key rate to its highest in more than 20 years. (Bloomberg)

Even a Soft Landing Can Be Ugly for Investors A spike in default rates and sharply lower corporate profits are among the possibilities unless inflation cools swiftly.

I really like long-term charts and John Authers offers many today:

Deutsche Bank AG

(…) default rates have been far lower since the cycle that started after the bursting of the dot-com bubble.

This was above all about low interest rates, which were held there by central banks in an attempt to keep the economy from crashing altogether. Their policies were also driven in large part by the implicit aim to minimize losses for bond investors, particularly in banks. Credit losses bring with them a far greater systemic risk than losses in an equity portfolio, which is perceived to be higher risk. “Moral hazard,” or the tendency to take on excessive risk when you know someone will rescue you from the consequences of your actions, has increased a notch after one attempt to reverse the trend led to near-disaster with the failure of Lehman Brothers. Rates have stayed low, and credit investors have perceived that they will have central banks on their side. This arguably robs capitalism of the necessary “creative destruction” and makes for a flabbier and less competitive economy. But for those on the right side of the trade, it’s been good. Both default rates and yields on debt have steadily declined, meaning a better deal for credit investors and for companies looking for finance.

If inflation does come under control quickly, then the Fed might come to the rescue once more, and the pattern of the cycles will repeat — but everything depends on rising prices. To quote Reid [from DB who made the projections on the first chart]:

Our view does depend on us being correct on inflation remaining notably above target through the end of this cycle and onto the next. If inflation does mean revert lower, then we will likely be wrong on both the 2023 recession and default cycle, and also on the start of a structural shift upwards in default rates over the years ahead.

This is Deutsche Bank’s chart of US margins since 1934:

Top Economist Urges China to Seize TSMC If US Ramps Up Sanctions

A senior Chinese economist at a government-run research group called on authorities to seize Taiwan Semiconductor Manufacturing Co. if the US hits China with sanctions on par with those leveled against Russia.

“If the US and the West impose destructive sanctions on China like sanctions against Russia, we must recover Taiwan,” said Chen Wenling, chief economist at the China Center for International Economic Exchanges. The research group is overseen by the National Development and Reform Commission, China’s top economic planning agency.

“Especially in the reconstruction of the industrial chain and supply chain, we must seize TSMC,” Chen said in a speech last month hosted by the Chongyang Institute for Financial Studies at Renmin University, which was posted online Tuesday by the nationalistic news website Guancha.

“They are speeding up the transfer to the US to build six factories there,” she added. “We must not let all the goals of the transfer be achieved.”

The comments are some of the most prominent so far showing how Taiwan’s chip industry is seen in Beijing as a key strategic asset in the intensifying rivalry between the world’s two largest economies. TSMC is the world’s largest contract manufacturer of semiconductors, accounting for more than 50% of the global foundry market, which involves businesses purely making chips for other companies. Its customers include Apple Inc., which relies on Taiwanese chips for iPhones. (…)

Growth in Jobs Market Extends Streak Jobs grew at slowest pace since April of last year, hinting that the labor market is starting to cool

Employers added 390,000 jobs last month, a robust increase but down from a gain of 436,000 in April and below the monthly average pace of growth last year, the Labor Department reported Friday. (…)

About 330,000 people joined the labor force, but the participation rate remained below prepandemic levels. (…)

Wages grew 5.2% in May from a year ago, the department said, down from 5.5% in April. That was a sign that the labor shortage might be starting to ease as more people return to the workforce. (…)

The labor-force participation rate, which measures the share of workers working or looking for work, ticked up to 62.3% in May from 62.2% in April but still down from 63.4% in February 2020. (…)

More info:

• Nonfarm payrolls rose 390k in May, 72k above consensus but a slowdown from the +516k average of the previous three months. The 3-month average now is 374k which compares with the 6-month average of 480k, the 12-month average of 521k and the 2021 average of 524k.
• The private sector added 333k, down from 405k in April and 496k on average in 2022.

• Job gains were good across most sectors aside from a surprise 61k drop in retail. This comes after much slower sales in March and April.
• The important 25-54 year old cohort saw a rise in the participation rate to 82.6% from 82.4%, almost back to the 83% of February 2020.
• Many were relieved by softer overall wage growth in May. But wages for production and non-supervisory workers (82% of private employees) increased 0.6% MoM, or 6.5% from a year ago.

• Goldman Sachs’ composition-corrected wage tracker now stands at +5.4% after 2 months in Q2, compared to +5.4% in Q1 and +4.7% in Q4.
• Unit labor costs were up 8.2% YoY in Q1, the most since 1982

Note that the BLS also updated its data on compensation and productivity last Friday. A real shocker that really scared investors on Friday:

Hourly compensation in Q1 was revised up to 4.4% QoQ annualized growth from 3.2% in the advance report. Total compensation was also revised for Q4’21 to a +10.5% annual rate from +7.4% reported previously.

Accordingly, unit labor costs, which rose 3.2% in 2021, jumped 8.2% in Q1’22, highest since 1982! On a smoothed trailing 12-m basis, ULC is up 5.1%, highest since 1983. The current pattern is scarily similar to that of the 1965-1970 period.

In the manufacturing sector, compensation was also revised markedly higher, to +5.9% QoQ from +2.8% reported before; also, the Q4 advance in hourly compensation was revised to +9.6% from just +1.1% before. So unit labor costs, which surged at a 10.3% rate in Q4 (vs +1.7% previously reported), rose 5.7% in Q1 (vs +2.1% previously).

An aggressive Fed you say?

Time to Worry About the Consumer?

Moody’s answers its own question with “no”.

At first glance, it is understandable that some are worried about the health of the U.S. consumer. The savings rate has dropped, inflation is high, revolving credit is climbing, and interest rates are on the rise. Despite all this, there is reason to be optimistic that the consumer won’t buckle under the pressure.

Some of the increase in revolving credit and drop in the savings rate is attributable to rising gasoline prices. Nominal consumer spending on gasoline has increased $91 billion at an annualized rate since the beginning of the year. Some consumers have dipped into savings because of higher prices at the pump.

Relief at the pump is not coming soon. The European Union’s sixth set of economic sanctions against Russia will create the biggest disruption to the global oil market since the Yom Kippur war. Based on our calculations, 4% of global oil supply will be erased, and U.S. gasoline prices will head toward $5 per gallon. Therefore, the savings rate will likely continue to fall while revolving credit will increase further. Over the past 10 years, the correlation coefficient between year-over-year growth in revolving credit and growth in retail gasoline prices is around 0.3. (…)

Despite the concerns about consumers they’re not slowing down. Using payment card transactions data from the Bureau of Economic Analysis, weekly consumer spending isn’t showing any significant deceleration. (…)

But that may be because of inflation. Chase’s tracking of discretionary spending since the Ukraine invasion suggests spending is flattish in nominal terms, so clearly negative in real terms:

The reality for the average American is that real labor income is up a low 1.7% YoY. Real expenditures are still up 2.8% but are rapidly trending down toward real payroll growth which they normally track very closely. Real payrolls are down 1.7% annualized so far this year.

On a MoM basis, nominal payrolls growth has been slowing in each of the last 4 months from both slower employment and slower hourly wage gains while working hours remain stable. Unless inflation recedes, the squeeze will keep worsening.

U.S. Services PMI: Business activity growth eases amid series-record rise in costs and softer demand conditions

US service providers recorded another monthly expansion of business activity during May, according to the latest PMI™ data. That said, the rate of output growth eased to the softest for four months amid the slowest rise in new business since last September, as well as ongoing labor and supply constraints. Domestic and foreign client demand weakened in part due to hikes in selling prices and supplier delivery delays. Although output charges increased at a slower rate than April’s survey high, the rise was marked overall and reflected soaring input prices, which increased at the sharpest pace on record.

Meanwhile, pressure on capacity continued to build as backlogs of work rose steeply again. In response, firms expanded their workforce numbers sharply. Firms were also more upbeat regarding the outlook for output over the coming year amid hopes of sustained new order growth.

The seasonally adjusted final S&P Global US Services PMI Business Activity Index registered 53.4 in May, down from 55.6 in April but broadly in line with the earlier released ‘flash’ estimate of 53.5. The latest index reading signalled a solid upturn in output across the service sector, albeit one that was the slowest since January. Anecdotal evidence stated that the rise in business activity was due to strong client demand and new customer wins. That said, the impact of inflation, labor availability and supply-chain disruption hampered growth momentum.

New business continued to increase in May, with client demand expanding solidly. However, growth was the slowest since last September. According to some firms, customer spending on services slowed as new client wins were often dampened by the impact of price hikes on demand.

At the same time, the increase in new export orders for services slowed from April’s series-record rate of growth. The pace of expansion in foreign client demand was stronger than the series average, despite reports that inflation and global uncertainty weighed on the upturn.

Meanwhile, inflationary pressures remained historically elevated in May. The rate of increase in cost burdens accelerated again to reach a new series high. Panellists stated that greater input prices stemmed from hikes in fuel, energy and supplier costs, alongside increased wage bills.

Service providers passed on higher costs to their clients through another marked monthly uptick in output charges during May. That said, the rate of selling price inflation slowed from April’s record pace as a limited number of firms mentioned concessions made to customers.

Despite a slower rise in new business, backlogs of work increased at a strong pace midway through the second quarter. Although the rate of growth softened from March’s record rise in outstanding business, it was among the fastest in the series history.

Partially easing pressure on capacity was a sharp expansion in employment during May. The rate of job creation was broadly in line with April’s recent high, with firms noting the filling of long-held vacancies and greater staffing numbers in response to new order inflows. However, hiring activity at some firms was constrained by ongoing staff shortages.

Finally, services firms remained upbeat regarding the outlook for output over the coming 12 months. The degree of confidence picked up from that seen in April and was strong overall. Optimism was driven by hopes of sustained increases in new business and greater hiring opportunities.

The S&P Global US Composite PMI Output Index posted 53.6 in May, down from 56.0 in April, to signal a solid but slower upturn in private sector business activity. The softer rise in output reflected slower increases in the manufacturing and service sectors, amid hikes in selling prices and supply-chain disruption.

New business rose at a strong, but slower pace. The rise in new orders was the joint-softest since September 2020. Foreign client demand growth also eased, with new business from abroad increasing at the weakest rate since January.

Inflationary pressures remained marked in May, as the rate of increase in cost burdens accelerated again. Although the pace of input price inflation quickened to a series high, there was evidence of a hesitancy to completely pass higher costs on, as output charges rose at a softer pace.

Backlogs of work continued to expand sharply, however, as firms stepped up their hiring activity in response. The rise in employment reflected the filling of long-held vacancies and expansion in capacity across the private sector.

While the survey readings are consistent with GDP growing at an annualized rate of just under 2%, supporting the view that GDP will return to growth in the second quarter, it is worrying that growth momentum is being lost so quickly.

West Monroe’s Quarterly Executive Poll—Q2 2022 Headwinds from inflation, geopolitics, and talent wars push executives toward a majority bearish outlook

(…) At the end of last year, Covid’s effects were waning, travel was increasing, and 2022 looked like a comeback year. That’s partly why 75% of C-suite executives told us they were bullish on the economy in Q4 2021. Fast forward to Q2 and only 45% are still bullish. (…)

West Monroe’s Quarterly Executive Poll takes the pulse of at least 250 C-level executives. This poll’s data was collected April 22-30, 2022. To qualify for the survey, respondents needed to have a C-level title at a company with at least $500 million in annual revenue.

Beijing Sticks to Xi’s Covid-19 Stance While Endorsing Premier as Economic Fixer As China’s Communist Party seeks to unify messaging, strict coronavirus controls complicate Premier Li Keqiang’s task of reviving economic growth.

Traditionally in China, the premier is in charge of the economy, though that division of power had been subverted for much of the past decade, during which Mr. Xi alone has dominated decision-making. Mr. Li has recently gained a greater economic role by tapping into worries within the ranks of the ruling Communist Party over faltering growth and rising unemployment, people close to decision-making say.

Signs of a divergence in policy priorities at the top echelon of Chinese power—with Mr. Xi emphasizing the need to stay the course on strict Covid-19 controls and Mr. Li stressing the importance of getting economic momentum going—had confused local officials as well as investors and exposed cracks in Mr. Xi’s power.

Now, the party appears to be seeking to unify the messaging. (…)

Both Shanghai and Beijing said this week they are lifting broad, hard-edged restrictions on people’s movements and business activities as new Covid-19 cases have stabilized. Authorities are also relaxing some measures to let closed factories resume production and to restart international travel.

But widespread lockdowns may well return if Covid-19 outbreaks flare up again: Officials and government advisers say it is unlikely Mr. Xi will abandon the zero-Covid approach that has come to define the past two years of his leadership, at a time when he is seeking a third five-year term as China’s top leader.

The Communist Party’s hold on power has long depended on its ability to deliver continued growth. Mr. Xi went into 2022 emphasizing economic stability, but has remained adamant about sticking to the zero-Covid policy.

Mr. Xi sees the policy as effective in protecting people’s lives; quickly bringing outbreaks under control also helps keep the economy running. State media has called the policy China’s “magic weapon” against the pandemic.

Since April, Premier Li, known as a cautious politician, hasn’t addressed the merits of the zero-Covid policy either publicly or privately, according to state-media reports and the people close to decision-making. Mr. Li instead has focused his effort on getting various levels of government to bring back growth.

In an unusual move, Mr. Li late last month held a videoconference with tens of thousands of officials across China to urge them to work harder to save the economy. (…) Mr. Li was unusually blunt about the dire economic situation the country is facing. He warned that growth could slip out of a reasonable range and urged local officials to spare no effort to avoid a contraction in the second quarter, according to a transcript of the call reviewed by The Wall Street Journal.

Instead of instructing local officials to adhere to the zero-Covid policy like other senior officials have done, Mr. Li told them economic growth is crucial to creating jobs as well as containing Covid-19. He also highlighted the importance of resuming manufacturing activities, saying that supply chains must be protected, the transcript showed.

Some officials said the call left them with a sense of urgency about the economy they had rarely felt before. One official in Zhejiang province who participated in the call said, “It was like, ‘do this or else.’”

The day after the video call, Mr. Li followed up by instructing the State Council, the top government body that he heads, to send inspectors across the country to make sure local officials are doing their job to ensure business activities and employment. (…)

‘No Longer Sure Bets’: Tech Giants Are Dropping Bad News Daily

(…) In the past two weeks, a parade of big names joined the crowd. Social media app Snap Inc. on May 23 pruned sales and profit forecasts and said it will slow hiring. The next day, Lyft Inc. said it will bring on fewer people and look for other cost cuts. Days later, Microsoft Corp. tapped the brakes on hiring in several key divisions, and Instacart Inc. said it will dial back hiring plans to nip costs ahead of a planned initial public offering.

The drumbeat continued yesterday, as Tesla Inc. Chief Executive Officer Elon Musk told employees the electric-vehicle maker needs to reduce its salaried workforce by 10% and pause hiring worldwide. Cryptocurrency exchange Coinbase Global Inc. also said  it will extend a hiring freeze and rescind a number of accepted job offers, citing market conditions.

Similarly gloomy pronouncements had already been dribbling out for weeks. Amazon.com Inc. has too many workers and too much warehouse space, and its business is hurting from rapidly rising inflation costs. Facebook parent Meta Platforms Inc. is easing hiring and paring expenses, and Twitter Inc. instituted a hiring freeze and withdrew some job offers ahead of a planned takeover by Musk. Apple Inc. warned in April that restrictions related to Covid-19 lockdowns in China will shave as much as $8 billion from revenue in the current quarter.

The humbled corporate ambitions signify a vibe shift for an industry that had seemed invulnerable, once offering workers and investors protection from the instability of the larger economy. (…)

More than 126,000 tech workers have lost their jobs since the beginning of the pandemic, according to Layoffs.fyi. (…)

With the companies preparing for a long season of uncertainty about their business, they’re having to make hard choices about investments beyond hiring and marketing. Amazon, which in 2020 invested heavily in the staffing and warehouse space it needed to meet a pandemic-related surge in delivery demand, now finds itself with too many warehouses and too many workers. (…)

[Meta] said it was scaling back expenses by $3 billion for 2022, the first signal that it’s becoming more judicious with its investments. (…)

• Elon Musk backtracks on job cuts: “Total head count will increase, but salaried should be fairly flat,”

ABOUT BUYBACKS

The Market Ear gives us the pros and the cons of buybacks back to back:

• Never forget the mighty buy back bid

Authorizations are $666 billion which is on pace for the best year ever. Open window closes on June 17 (the huge expiration day). GS Research US Portfolio strategy team has $1 Trillion for 2022 Corporate Executions. ($1T/252 = ~$4B, assuming no closed windows) according to Scott Rubner…which is basically >$5B per day during the open window.

GS

• …but do buybacks matter?

Buybacks will save equities. According to BofA’s quant guru, the answer is no. She writes: ” …the relationship between S&P 500 buybacks and index performance since 1986 is a minimal 0.07 R-squared. Furthermore, our weekly BofA corporate client buyback data have a similarly low relationship with future index performance (0.02 R-squared). What we can validate is that companies that repurchase shares at inexpensive valuations tend to outperform.”

BofA