The stock market has surged lately and a lot of analysts credit it to stock buybacks by corporations. As the chart here shows, buybacks have reached dizzying heights. Corporations are purchasing their own stocks because corporate profits hit record levels last year and management can find no better use for the cash than to give it back to the owners through larger dividends or buybacks.
As I wrote recently, record corporate profits, the current level of optimism and the low yields on debt justify the current loftiness of the market. This is not a bubble, but most investors are wondering what will shoot down this high flying market? Corporations appear to be the last buyers standing because “mutual fund managers have the lowest cash levels in history and money market fund levels are lower now than in 2007 and near a record low from 2000 relative to the capitalization of the stock market."