Shrinking equity supply is bullish as it supports higher prices. With valuations at such low levels, we fully expect share buybacks to continue. The S&P 500 has a forward P/E ratio of 12.3x. That means its earnings yield is approximately 8.1% (the inverse of its P/E) which is much higher than current bond yields. In other words, companies can use debt to buy back stock and earn the difference between their own earnings yield and the respective bond yield. Easy money.
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