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Illustration: Rebecca Zisser/Axios

After buying back more than $1 trillion of their own stock last year, public companies are slowing their share repurchases in 2019, and that will add to troubles for the market and the economy.

Why it matters: Buybacks have been a major catalyst for the market’s rise in recent years and remain an important driver of higher prices, as earnings growth has slowed and investors have become net sellers of equities.

  • With the trade war weighing on business spending and confidence, and earnings growth expected to weaken into negative territory for companies in both the second and third quarters this year, the stock market’s legs look increasingly fragile.

By the numbers: The record buyback binge in 2018 accounted for almost half of stocks' earnings-per-share growth, the largest proportion since 2007.

  • S&P reported earlier this year that Q1 2019 was the first quarter in 7 that the pace of buybacks slowed.
  • That theme has continued through the year, as the 4-week average pace of buybacks has fallen 30% from 2018’s pace as of this week, data from Bank of America Merrill Lynch shows.

What they're saying: In a recent note to clients, BAML strategists said they see late 2018 as “the turning point in this cycle of expanding debt balance sheets, buying growth and rewarding shareholders.”

  • “Investors have grown less enamored with buybacks,” Jill Carey Hall, equity and quant strategist at Bank of America Securities, tells Axios in an email. “Stocks doing the biggest buybacks had outperformed for much of the earlier part of this cycle, but over the last few years those doing the biggest buybacks have actually underperformed.”

The big picture: Companies are preparing for the economy to slow and want to pare debt and hold cash in the event of a downturn.

  • “More companies are concerned there’s a recession coming next year, and they’ve decided to preserve capital,” Bernard Baumohl, chief global economist at the Economic Outlook Group, tells Axios.
  • He argues the reduction in buybacks is a much smaller worry than the trade war, which has dampened his previously bullish outlook for the market and the overall economy.
  • In June, Baumohl said 2019 looked to be the middle of “the first game of a double header" for the economic expansion, but he now says his firm sees a 50% chance of a recession in 2020.
Buybacks are slowing, but they're not stopping
Expand chart
Data: Bloomberg, Compustat, Standard & Poor’s, FactSet, J.P. Morgan Asset Management; Chart: Axios Visuals

The buyback math is simple, David Lebovitz, global market strategist at J.P. Morgan Asset Management, tells Axios.

  • "The way to explain [less buyback spending] really comes back to what’s happening with underlying corporate profitability, and we’ve seen a pretty significant slowdown in the pace of earnings growth so far in 2019," Lebovitz says. "Because there’s less money coming through the door, the pace of buybacks has slowed."

Yes, but: This is not the death of share buybacks, by a long shot, Lebovitz adds.

  • "From a pure economic growth standpoint, last year U.S. growth was juiced by fiscal stimulus and tax cuts. That allowed us to grow well above trend. The back half of this year into next year ... we’re just not getting that gasoline poured on the fire," Lebovitz says.

The bottom line: Uncertainty about the Fed's interest rate outlook and the trade war aren't helping, either.

  • "When CFOs are looking at the next 12 months, it is kind of difficult for them to put their finger exactly on what nominal demand is going to look like, and at the same time we’re not getting that same support from fiscal policy," according to Lebovitz.

Go deeper

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Blinken and Lavrov shake hands in Geneva. Photo: Russian Foreign Ministry / Handout/Anadolu Agency via Getty Images

Secretary of State Antony Blinken confirmed after a meeting with his Russian counterpart on Friday that the U.S. will provide written answers to Russia's security demands next week.

Why it matters: Russia claims to be waiting for "concrete answers" to its demands that NATO rule out further expansion and roll back its presence in eastern Europe before deciding its next steps on Ukraine. But the U.S. and NATO have called those proposals "non-starters," and Friday's meeting offered no breakthroughs, so it's unclear how written answers might change the equation.

More surprises await scientists at Antarctica's "Doomsday Glacier"

Cliffs along the edge of the Thwaites Ice Shelf in West Antarctica. Photo: James Yungel/NASA

Researchers like David Holland, an atmospheric scientist at New York University, are in a race to understand the fate of a massive glacier in West Antarctica that has earned a disquieting nickname: "The Doomsday Glacier."

Why it matters: Studies show the Thwaites Glacier (its official name) could already be on an irreversible course to melt during the next several decades to centuries, freeing up enough inland ice to raise global sea levels by at least several feet.

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The case for Operation Warp Speed 2.0

Illustration: Annelise Capossela/Axios

Omicron's blitz around the world has underscored the need for a new arsenal of COVID vaccines and therapeutics, experts say — and that may require an effort akin to Operation Warp Speed 2.0.

Why it matters: The virus will continue to evolve, potentially in a way that further escapes vaccine protection, and the best way to prevent more global disruptions to everyday life is to have tools ready to combat whatever comes next.