Spring break is an annual ritual for many in college. A time for carefree abandonment where you are sure you are invincible and the crowd is your biggest ally. And when I think about what is going on in the stock market as 2018 spring break approaches, I cannot help but imagine a large band of C-Suite Executives leading the party this year. With the Tax Bill passed last December, corporate pockets are flush with extra cash, and they are just looking for a way to spend it. According to President Trump, they are going to do the responsible thing - they will invest it in plant and equipment and create American jobs and the economy will flourish.
But Spring Break has never been about doing the responsible thing. It is more about doing the irresponsible, and pushing it to the limits. And in the year of freebies being released from Washington in the hope of responsible behavior, there is this Pollyannaish notion that the adults in the C-Suite will do the right thing. Well optimism would be well founded if you believe that doing the right thing is taking the tax-cut windfall and continuing the trend of buying back your own company stock.
According to Bloomberg Intelligence, corporate buybacks are likely to jump 75% to $850B in 2018 after the passage of the Tax Reform Bill. This would not only continue an already hot trend, but accelerate the activity to a new level well beyond the high reached in 2007. And, in case you missed it, 2008 and 2009 came after 2007.
Which raises the important question, is excessive corporate buyback activity signs of a healthy stock market and therefore considered responsible behavior?