US Shares Close Higher Spurred By Buybacks And A Favorable Economic Outlook

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Options trading

Stocks in the U.S. closed the Tuesday session on a positive note with at least two major equity indices hitting records. The favorable U.S. jobs data released last week continues to lift investor sentiment regarding the health of the economy, thus driving appetite for riskier investments.

It has also emerged that the willingness by companies to repurchase their shares from the public is generating strong demand for equities. Buybacks reduce the number of outstanding shares and that leads to higher earnings per share, which in turn push stock prices up.

How the major indices performed

The Dow Jones Industrial Average (INDEXDJX:.DJI) rose 0.7% on Tuesday after adding 120.74 points to close the day at 18,347.67. With that, the blue-chip index hit a new milestone after crossing over its previous record closing of 18312.39 reached on May 19, 2015.

The S&P 500 (INDEXSP:.INX) also set a new record for the second day this week. The index gained 14.98 points to move up 0.7% from its Monday closing level.

The NASDAQ Composite (INDEXNASDAQ:.IXIC) added 34.18 points to sprint 0.7% ahead of its previous closing.

Stock repurchases

U.S. companies have stepped up repurchasing their shares, thus increasing demand for shares somewhat artificially. It has emerged that companies in the S&P 500 repurchased shares worth $161.4 billion from shareholders in 1Q2016, which is considered one of the largest quarterly buybacks in recent history. With that, the number of outstanding shares of companies in the S&P 500 has dropped compared to their level sat the beginning of the year. The decline in outstanding shares has triggered increased demand for stocks.

Analysts predict that share repurchases will continue as many S&P 500 companies still have billions of dollars left in their buyback programs and some are expected to announce fresh buyback programs after exhausting earlier allocations.

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