Gross domestic product expanded 1.7% this year, down from 2.8% in 2012, according to 86 economist estimates compiled by Bloomberg. The U.S. economy increased an average of 2.3% per quarter since 2009, the weakest recovery since World War II. While a report last week showed retail sales rose more than forecast in November, a separate release showed unemployment benefits increased.
“At the margin we’re seeing some improvements in the economy, but there doesn’t seem to be a significant pickup,” McCain said in a Dec. 11 phone interview. “It’s a tough environment for companies to find projects where they can put more money into a new capacity, when most industries are struggling.”
To LPL Financial LLC’s Jeffery Kleintop, a slowdown in share repurchases wouldn’t be a negative sign. After a record year of corporate buying, companies will shift next year to investing their extra cash in plants, equipment and more workers as sales pick up with the economy, he said.
Revenue is forecast to grow almost twice as fast in 2014 as it did this year. Analysts project S&P 500 companies will boost sales 4.1% to $1,134 per share next year, then another 4.5% to $1,166 in 2015, according to data compiled by Bloomberg.
“We may not see as many buybacks,” Kleintop, chief market strategist at LPL in Boston, which manages about $400 billion, said in a Dec. 11 phone interview. “It’ll be positive. Businesses will actually be investing in fundamental growth and not financial engineering. Next year, the growth in earnings will be much more focused on fundamental growth, which is much more healthy.”
Chief executives have record cash that could keep buybacks going or be used to fund investments. S&P 500 companies had $1.14 trillion of cash and equivalents as of June 30 and are on track to top that for the third quarter, according to data compiled by S&P. The total has increased every quarter since Sept. 30, 2012, and is almost twice the level when the S&P 500 last reached a record in October 2007.
Companies authorized $728 billion in repurchase programs this year, compared to $467 billion at this point last year, Birinyi data show.
“Buybacks are a good thing,” Thomas Garcia, the head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc. said in a Dec. 11 phone interview. His firm oversees $90 billion. “They’re willing to purchase shares. It’s a good thing to see that they have cash flow.”