CHART OF THE DAY: Corporate Stock Buybacks Officially Go Bananas

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Forget fundamentals, here’s another reason to be bullish.

WJB Capital Group points out that in just the last few weeks, there’s been a massive surge in S&P 500 stock buybacks coinciding with a boom in corporate bond issuance. In other words, companies continue to take advantage of uber-cheap lending to reduce their share counts.

This is truly a stunning chart. When buyback announcements hit $100 billion in the last quarter, we pronounced that companies had now put themselves in the driver’s seat in terms of being the major buyer of stocks, just as they did in the last bull market.

And yet, stock investors still don’t want to believe it. Most of Wall Street’s resources go to examining fundamentals or the behaviour of other stock investors. Almost no analysis goes into corporate purchases of stocks, despite their importance. As a result, with shares set to shrink 5% or more a year, earnings per share estimates three years out may be 15% too low!

chart of the day, s&p 500 announced stock buybacks, may 2011