Midweek Market Potpourri

With a ceasefire appearing to hold in the Middle East and the S&P 500 back above pre-conflict levels, other news is starting to find its way back to headlines. Wednesday brought an interesting smattering, featuring stock buybacks, long rates’ recent slide and yet more presidential jawboning about Fed appointments. Let us take a look!

The Complicated Truth About Stock Buybacks

Per The Wall Street Journal, S&P 500 stock buybacks hit a record high in Q1 2025, topping the previous high notched in Q1 2022, with Tech and Financials leading the charge.^[i]

Tradition holds that stock buybacks are bullish, yet the S&P 500 fell in Q1 as the correction began mid-February. Financials rose, but Tech was the second-worst performing sector in the index that quarter. And Q1 2022? That was the start of that year’s sentiment-induced bear market.

In our view, it is all a good reminder that while buybacks are bullish in nature, they are not automatically a catalyst for positive returns. Stock prices, like all prices, derive from supply and demand. Buybacks, all else equal, reduce supply. But they are only one supply driver, and sometimes firms use them to offset secondary share issuance (e.g., shares awarded through employee compensation), so buybacks don’t always mean total supply is falling. And demand matters, too. If investors are less eager to buy, as they were in late winter and early spring, that can swamp a supply decrease. The stock market is a complex beast.

But we aren’t here to pooh-pooh buybacks. And it doesn’t shock us that companies might see them as an excellent use of cash during a volatile spell, buying at a discount and boosting earnings per outstanding share (by reducing the denominator). Recent history has overwhelmingly shown that buybacks and capex can coexist, despite politicians’ frequent gripes to the contrary. We just think it is good to bear in mind that buybacks don’t automatically mean rising prices or outperformance. They are just one variable.

About Those Long-Term Bond Yields

Remember a few weeks ago, when deficit worries were hogging headlines and rising long rates had everyone spooked that a new era of soaring and increasingly unaffordable debt was at hand?

Turns out it was all just normal short-term volatility, which happens in bond markets as well as stock markets. The benchmark US 10-year government bond yield, which hit a year-to-date high of 4.58% on May 21, closed at 4.30% yesterday.^[ii] The 30-year, which caused so much handwringing when it topped 5% last month, is down to 4.83%.^[iii] Deficit chatter hasn’t gone away, but markets’ jitters have seemingly eased somewhat.

To us, this looks like a classic case of markets responding quickly to a headline fear, chewing it over, then moving on. Stocks do it all the time, and folks mostly see it as normal, the standard zigs and zags that even out to a bull market. But people seemingly forget that bond markets are subject to sentiment-driven wiggles as well. And when yields rise alongside a seemingly plausible reason, folks presume it is a trend, a permanent move. But bond markets price news, opinions, forecasts and fears as efficiently as stocks do. Eventually, whatever is weighing on sentiment gets chewed and re-chewed to flavorless cud, and everyone moves on to the next thing.

Yes, but rates are still high, you might say. Compared to recent history, yes. But focusing on the very recent past is a cognitive error called recency bias. Proper perspective requires looking at all of history to see if rates are abnormally high or low. As it happens, they aren’t. The 10-year is below its long-term average of 5.84% since 1916, while the 30-year trails its long-term average of 6.20% since 1977.^[iv] If we look instead at the median, which has less skew from the late 1970s and early 1980s’ high rates, today’s levels are still lower. The 10-year’s median is 5.52%, while the 30-year’s is 5.53%.^[v] Rates aren’t high today, in our view. They seem pretty tame.

Fed Head Jawboning Returns

This week’s NATO summit has generated a lot of headlines, but one had nothing to do with conflict or national defense: At his press conference, President Trump alluded to “three or four people” being on his shortlist to replace Fed head Jerome Powell when his term ends next year.

Friends, please save yourselves some energy and don’t read into this. We didn’t actually learn anything new. Trump has spoken many times of replacing Powell. That doesn’t guarantee he will. Powell’s term ends next May, almost a year away. That is a long window where the administration’s sentiment and rhetoric could change. Even if Powell is out, we are no closer to knowing who the replacement will be. And even if we did, scrutinizing that person’s record and past comments wouldn’t help anyone know what they would actually do as Fed head. Pretty much all Fed heads in recent memory have defied the expectations that accompanied their hiring. Then, too, the Fed votes by committee. The Fed head can try to steer the consensus, but that consensus is the product of a dozen people’s unique views, philosophies, analysis and intuition.

So unless you are into Fed head guessing purely for fun, we wouldn’t spend much brainpower on this. Stick to assessing the Fed’s moves as it makes them. Trying to predict any of it is generally a fruitless endeavor from an investing standpoint.