By , Contributor USA Today article by Matt Krantz Big money is trying to stomp out the fear gripping the markets by…thetrustadvisor.com
Big money is trying to stomp out the fear gripping the markets by putting its cash where its mouth is.
Big banks, big-time executives and big companies are all digging deep to buy this market — providing a much-needed bid for stocks as fear cascades and threatens to turn the sell-off into something worse. The effort seems to be paying off — for now. Following days of vicious selling, the Standard & Poor’s 500 is up more than 1% and the Dow Jones industrial average is rallying more than 200 points to 15,868.
Investors fretting that the market’s declines this year is a harbinger of big problems need hand to hold. The Standard & Poor’s 500 has sunk 10.5% this year as investors fret over dropping oil prices, economic slowing in Asia and Europe and rising bond defaults.
But seeing big investors step up, hold their noses and buy gives the market an vote of confidence that speaks louder than anything economists, market forecasters or even Federal Reserve head Janet Yellen can say.
Here are some way big money is showing confidence in the market:
* Big-time buybacks. Already this year, 19 companies in the Standard & Poor’s 500, including Amazon.com (AMZN), Chipotle Mexican Grill (CMG) and biotech Gilead Sciences (GILD) have announced they will buyback their own shares, according to a USA TODAY analysis of data from S&P Global Market Intelligence. Collectively, these companies plan to spend more than $60 billion on these buybacks. Buybacks — while controversial over how much they actually benefit investors — do show a company deems its stock so attractively priced its own shares are one of the best places to put its cash. Stock buybacks can also provide buying support for stocks that are under pressure. Amazon plans to spend $5 billion on its own stock, which translates into 9.8 million shares or 2% of the shares outstanding. Shares of Amazon are down 21% to $508 a share. Others are looking to be even more aggressive. FedEx (FDX) plans to buy 25 million shares, which is nearly 10% of its shares outstanding.
* Executives stepping up and buying. A dozen CEOs of S&P 500 companies, including Michael Corbat atCitigroup (C), Stephen Wynn of Wynn Resorts (WYNN)and Stephen Luczo of computer hard drive makerSeagate Technology (STX) have stepped up and bought shares of their companies in the open market at least once this year, according to a USA TODAY analysis of data from S&P Global. These are purchases at market prices — not buys made at steep discounts connected with options exercises — showing real faith in the stock and company. Jamie Dimon of JPMorgan Chase (JPM) was the latest CEO to step up buying nearly $27 million of the bank’s shares. That’s real money — even for Dimon — as it equals his total pay in fiscal 2014. Shares of JPMorgan jumped $3.95, or 7.5%, to $56.98 a share following Dimon’s move.
* Banks lending buying support. Beleaguered banks are showing their confidence by using their own cash to make a statement. Germany’s Deutsche Bank told investors it would buy $5.4 billion of its debt. Showing it has the faith in its debt helps cool the panic and worry that it’s loaded with troubled loans. Shares of Deutsche’s stock shot up $1.64, or 12%, to $15.33 in European trading. Shares are still down 50% over the past year.
It’s important to note that even big money can be wrong. But at least investors know they have good company if the global financial sell-off continues.