Share Buybacks Get the Boot as Corporate America Reinvests in Itself

Of all the signs out there that the US will manage to dodge a recession once deemed inevitable, perhaps none is more convincing than this: CEOs across the country are opting to reinvest more of their profits in expansion projects rather than handing the money back to shareholders.

The shift in cash allocation has been a hallmark of the second-quarter earnings season. With tightening credit muting share repurchases, and the siren song of artificial intelligence blaring everywhere, outlays for investment in plants and technology have blossomed. The median company pushed up capital expenditures by 15% in the period, with three-quarters announcing programs that topped analyst estimates in July, data from Bank of America Corp. shows.

By contrast, buybacks among corporate clients have been tracking below seasonal trends since May. More broadly, net repurchases plunged 36% from a year ago among S&P 500 firms that announced financial results. And the reluctance is also on display via planned buybacks, which according to Birinyi Associates have fallen 15% year—to—date.

It’s long been a goal of progressive politicians and industrial reformers: rid chief executives of their share-repurchase addictions and get them to spend on the future. Amid mounting pressure to modernize, there are signs that are happening. Goldman Sachs Group Inc. strategists forecast S&P 500 buybacks will trail capital expenditures this year for the first time since 2020.

“Corporate America is reinvesting,” BofA strategists including Ohsung Kwon and Savita Subramanian wrote in a note Monday. “The reinvestment cycle will ultimately lead to increased productivity, which will be the main driver of earnings growth going forward, vs. the last decade’s financially-engineered growth.”

Corporate America is Rethinking Cash Use