The Goldman Sachs Group Inc. unit that executes share buybacks for clients just had its busiest week ever, but even that couldn’t keep stocks from flopping into a correction.
Last week, the firm’s corporate-trading desk saw 4.5 times its average daily volume from 2017, according to data seen by Bloomberg. Even as companies scooped up their own shares, the S&P 500 Index fell 5.2 percent, its worst weekly slide in two years.
It’s testament to the force of the decline, a consequence of surging bond yields and inflation jitters that shocked everyone from individuals to passive fund clients.
“The corporate buying — they were basically the only buyers last week,’’ Matt Maley, a strategist at Miller Tabak & Co, said by phone. “Whenever we have forced selling take place, the buyers disappear and the sellers have to sell no matter what. And corporate buybacks are not going to be enough.”
Investors bailed from stocks, with equity funds seeing record redemptions of $33 billion during the week through Feb. 7, according to EPFR Global data. After a blowup in volatility-linked products and fears of inflation stoked investor unease, risk aversion overtook greed.
Corporate buybacks, the biggest source of demand for U.S. stocks during the nine-year rally, picked up as a slump sent the S&P 500 to 17 times forecast earnings, the lowest valuation since early 2016. Companies are also boosting repurchases as the fourth-quarter earnings season nears its end, concluding a blackout period that can restrict share repurchases.
To a degree, Goldman’s data is at odds with a body of Wall Street opinion that corporate buyers were largely absent before or during the sell-off due to blackout restrictions customarily tied to earnings season.
Binky Chadha, Deutsche Bank AG’s chief global strategist, said an increase in buybacks would mean a quicker end to the slump. “The resurgence of the corporate bid for equities post earnings season is imminent, and argues for a shorter period” of pullback, he wrote in a Monday note.
Companies that habitually spend more money on repurchases fared a little better than the broad market during the rout. The S&P 500 Buyback Index slipped 9.9 percent from Jan. 26 to Feb. 8, beating the benchmark gauge by 0.2 percentage point.