/Dow Snaps Back as Stock Buybacks Provide False Sense of Security

Dow Snaps Back as Stock Buybacks Provide False Sense of Security

The Dow and broader U.S. stock market advanced on Wednesday, propelled higher by optimism that the United States and China are eager to bury the hatchet on their nearly yearlong trade dispute.

Dow Rallies; Nasdaq Follows in Short Order

All of Wall Street’s major indexes traded in positive territory on Wednesday, reflecting a positive pre-market for Dow futures. The Dow Jones Industrial Average climbed 38.34 points, or 0.14%, to 26,586.56 The DJIA was up by as much as 112 points earlier in the day.

dow jones industrial average (DJIA) price chartdow jones industrial average (DJIA) price chart
The Dow added a few dozen points on Wednesday, while the S&P 500 struggled to tread water. | Source: Yahoo Finance

A strong performance in the technology sector propelled the Nasdaq Composite Index higher. The benchmark rallied 0.38% to 7,914.64.

The broad S&P 500 Index of large-cap stocks gave back gains and was last seen trading at 2,916.77, where it was virtually unchanged. Seven of 11 primary sectors recorded losses, led by Real Estate (-1.87%), Utilities (-1.84%), and Health (-1.33%).

Stock Buybacks Provide False Sense of Security

Wall Street is clinging near record highs at a time when global equity markets are shrinking. The reason: stock buybacks, according to Citigroup.

Robert Buckland, a managing director at Citi Research, told CNBC on Tuesday that buybacks have been ramping up "at a time when investors have generally been suspicious of equities through most of this bull market."

He added:

"Really, the main marginal buyer of the public equity asset class has been companies, not your regular investor.”

Just last month, Hacked reported that U.S. equity values would be much smaller without the massive influx of share buybacks since 2011. Buybacks have equaled $3.5 trillion over the past eight years and without them, the S&P 500 Index would be 19% lower, according to Ned Davis Research.

After a dismal end to 2018, the U.S. stock market through April rounded out its best start to a year since 1998. A volatile May has given rise to a stellar rebound in June as traders look to the Federal Reserve to implement a new round of low-rate stimulus.

The Fed is widely expected to cut interest rates after its next meeting on July 30-31.

Click here for a real-time Dow Jones Industrial Average (DJIA) price chart