{"id":45076,"date":"2023-11-01T00:54:55","date_gmt":"2023-11-01T00:54:55","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=45076"},"modified":"2023-11-30T01:51:46","modified_gmt":"2023-11-30T01:51:46","slug":"debt-reduction-buybacks-and-sp-500-p-e-multiples","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2023\/11\/01\/debt-reduction-buybacks-and-sp-500-p-e-multiples\/","title":{"rendered":"Debt reduction, buybacks and S&P 500 P\/E multiples"},"content":{"rendered":"

There is a rising trend — especially in the telecommunications, utilities, and REITs sectors — of selling off non-core assets and using the proceeds to reduce debt. Rising long-term interest rates are likely to accelerate this trend.<\/p>\n

Debt reduction reduces funds available for stock buybacks. This chart from S&P Dow Jones Indices<\/a> shows buybacks on the S&P 500 have been declining since Q2 of last year.<\/p>\n

\"S&P<\/p>\n

<\/a><\/p>\n

Without buybacks, S&P 500 earnings growth is expected to follow declining year-on-year sales growth, removing the justification for high earnings multiples.<\/p>\n

\"S&P<\/p>\n

Price-earnings multiple for the S&P 500 is expected to decline towards its 50-year average of 16.4.<\/p>\n

\"S&P<\/p>\n

Conclusion<\/h2>\n

Debt reduction is likely to accelerate the decline of stock buybacks, eroding support for elevated price-earnings multiples.<\/p>\n

Declining sales growth is likely to reduce earnings growth and further erode the justification for high earnings multiples.<\/p>\n

The price-earnings multiple for the S&P 500 is expected to decline towards its 50-year average of 16.4 (based on highest trailing earnings).<\/p>\n

Acknowledgements<\/h4>\n