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Goldman Sees a $1 Trillion Stock Market Tailwind in 2025, and How to Take Advantage of It

March 8, 2024
minute read

In the upcoming year of 2024, there is a potential resurgence of share repurchases in the S&P 500, and the anticipated catalyst for this rebound is what Goldman Sachs refers to as the "Magnificent 7." According to insights provided by the financial institution, S&P 500 constituents are expected to engage in share repurchases amounting to a substantial $925 billion, reflecting a significant 13% increase in comparison to the previous year. This upward trajectory is projected to continue, with a forecasted 16% surge in 2025, propelling the total buybacks to surpass the $1 trillion mark.

Goldman Sachs attributes the decline in S&P 500 buybacks observed in 2023, a 14% drop, to factors such as limited earnings growth, elevated cost of capital, and macroeconomic concerns. This information was outlined in a Wednesday note authored by Goldman strategists David Kostin and Cormac Conners.

The concept of share repurchases involves companies buying back their own stock, thereby reducing the overall number of shares available in the market. This strategic move aims to enhance the value for existing shareholders by effectively boosting earnings per share.

One contributing factor to the potential rise in buybacks this year is the better-than-expected earnings anticipated from mega-cap tech companies. The Magnificent 7, comprising Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, collectively accounted for a substantial 26% of S&P 500 repurchases in the year 2023. Goldman Sachs identified that, excluding Amazon and Tesla, these companies engaged in share repurchases during the fourth quarter of the same year.

Aside from increasing shareholder value, share repurchases may also exert a positive influence on the stocks of the involved companies. Goldman Sachs observed that investors have demonstrated a preference for companies engaged in share buybacks over other uses of cash in recent months.

In fact, Goldman's own buyback basket has outperformed the S&P 500 by an impressive 4 percentage points since the commencement of the fourth quarter of 2023.

The share repurchase basket curated by Goldman Sachs includes notable names, with Meta Platforms being a noteworthy addition in the fall of last year. Meta Platforms recently expanded its share buyback program by a substantial $50 billion, and as of December 31, 2023, had $30.93 billion in authorized shares available for repurchase. Despite Meta's stock surging nearly 45% year to date, analysts foresee a potential 1% dip from current levels, according to the consensus price target.

Another member of the Magnificent 7, Apple, also features in Goldman's share repurchase basket. During its fiscal first quarter, Apple disclosed expenditures of close to $27 billion on dividends and share repurchases. Although Apple's shares have experienced a 12% decline in 2024, the majority of analysts remain optimistic, with almost two-thirds rating the stock as a buy or strong buy. The average price target suggests an 18% upside from the current levels.

Goldman Sachs has also identified oil companies Marathon Oil and Marathon Petroleum as noteworthy picks for share repurchases. Marathon Petroleum, having authorized $5 billion in share repurchases in October, demonstrated an expansion from its previous authorization, which still had $4.3 billion remaining as of the end of September. Despite the energy company's shares seeing a 20% increase in 2024, analysts' projections imply a potential 2% decline from the current levels.

Conversely, Marathon Oil has lagged behind the broader market in the current year, registering only a 2.2% rise compared to the S&P 500's gains of over 8%. Nevertheless, the company executed share repurchases exceeding $1 billion in 2023.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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