WisdomTree Minds on the Markets

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Minds on the Markets

WisdomTree

Minds on the Markets

Jeff Weniger, CFA Head of Equity Strategy

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Kevin Flanagan Head of Fixed Income Strategy

Read Kevin's Bio

Jeff Weniger, CFA: Head of Equity Strategy Read Jeff's Bio

Kevin Flanagan: Head of Fixed Income Strategy Read Kevin's Bio

Share Buybacks Are Full Steam Ahead

Week of September 2, 2025

Nvidia made a splash last week, or maybe an anti-splash, when it reported earnings and stated an intention to buy back $60 billion in stock. Some observers viewed the buyback announcement as a negative that perhaps indicates the firm doesn’t have better ideas on how to invest in the business. Others say it’s a positive. It signals the company’s management may view its own stock as a compelling value. Still others said the $60 billion price tag was no big deal; in the context of the company’s $4.4 trillion market cap, it’s a drop in the bucket.

Nvidia is not alone in its embrace of share repurchases. Birinyi Associates notes that collective share buybacks by US companies passed the trillion-dollar mark on August 20th, the quickest pace to that milestone on record. One of many explanations for the rise in prominence of share repurchase announcements: with qualified and ordinary dividends taxed at top marginal rates of 23.8% and 37.0%, respectively, many firms who find themselves flush with cash have simply focused on the share count first, dividends second.

Meantime, there is another important point with regards to the buyback trend: it has gone global. In the late 1990s, the MSCI Japan index had only a smattering of companies with a positive net buyback yield, whereas today it is a nearly universal concept, with 84% of that index’s market cap comprised of firms who are reducing share count. Similarly, MSCI Europe spent most of this century’s first few decades with less than 50% of its companies actively buying back stock. But as the Global Financial Crisis fades into memory, that figure has steadily risen; today about 78% of European companies are reducing their share count.

Domestically, if the Street has the S&P 500’s earnings picture right, there could be room for 2026 to surpass this year’s buyback record. According to Yardeni Research, the S&P’s operating earnings estimate for 2025 is $267.54, an 8.7% jump from $246.19 recorded last year. But in 2026, the Street is penciling another 13.3% earnings rise, to $303.29. Unlike in prior cycles, where FY1 earnings tended to be revised down as the clock wound, the 2026 estimate has been gently rising; it was around $300 earlier this summer. On 2024, 2025 and 2026 earnings, the S&P trades for a P/E of 26.3, 24.2 and 21.3, respectively. Few market watchers would declare these valuations to be cheap, but if we see anything in the double digits on 2026 earnings growth, there is a real possibility that next year’s buybacks could start to approach something like $1.5 trillion.

Don’t forget another wrinkle in the plot line. Recent years brought a little obstacle for management teams that wanted to buy their stock: written deep in the bowels of the 2022 Inflation Reduction Act was a 1% corporate buyback tax, a new concept that remains law today. During her campaign, Kamala Harris ran on a platform of raising that figure to 4%. However, we don’t think a plank of raising the buyback tax will be a top priority for either the Democrats or the Republicans in 2026 or 2028, on account of the political power of the “401(k) voter.” Of note: the “One Big Beautiful Bill” didn’t touch this issue, so it looks like mandates that run buyback screens may be in the clear in Washington for the foreseeable future.

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This material contains the opinions of the authors, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy or deemed to be an offer or sale of any investment product, and it should not be relied on as such. There is no guarantee that any strategies discussed will work under all market conditions. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein.

Kevin Flanagan and Jeff Weniger are Registered Representatives of Foreside Fund Services, LLC.

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