The Fed Unleashed A Mega Bullish Force For These Stocks
- Date: 30-Dec-2020
- Source: Forbes
- Sector:Financial Markets
- Country:Middle East
The Fed Unleashed A Mega Bullish Force For These Stocks
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Wall Street banks are cheering like kids on Christmas morning.
In an unlikely move, the Fed gave them the go-ahead to buy $11 billion of their own stock. And America's largest banks—including JP Morgan (JPM), Goldman Sachs
GS
, and Bank of America
BAC
—popped ~3-5% on the news.
Why so much fuss about buying their own stock?
Individual investors may not know this well, but buybacks have become a powerful tool for wealth distribution. And today, a lot of companies use them as a fill-in for dividends to pay back to shareholders.
In fact, buybacks are one of the reasons stock investors have gotten so rich since 2010.
Problem is, the Fed barred banks from buying back their own shares during Covid. And while America's largest banks have hoarded the largest pile of cash since 2010 , they had few options for handing it out to investors.
But now that the ban is relaxed, the banks are set to “pay back” tens of billions of dollars in 2021.
I'll explain how this works and what it means for investors in a moment. First