Stocks are at record highs, and so are company share buybacks. What do companies know?

American companies are buying back their own stock at a record pace, even as stock prices are at all-time highs.

That kind of share repurchase activity can continue to fuel the stock market to new record highs, making any dips along the way a buy opportunity, some analysts said.

It’s “an excellent sentiment indicator,” researchers at trading platform Captital.com wrote in a note. “They tell you management is confident.”

Share buyback announcements from corporate America in 2025 reached $1 trillion on Aug. 20 – reaching that milestone at the fastest pace ever, according to data going back to 1982 from financial research and money management firm Birinyi Associates. At that rate, companies will repurchase over $1.1 trillion of their shares in 2025, an all-time high, Birinyi said.

Companies often repurchase shares when they feel their shares are undervalued. Buybacks can reflect management’s confidence in the company and its outlook, experts said.

“Buybacks can be a boring footnote. Or they can be a beacon,” said Nicholas Vardy, editor of The Global Guru financial newsletter. “If you’re looking for the biggest, boldest move on Wall Street in 2025, forget IPOs (initial public offerings) or M&A (mergers and acquisitions) headlines. The real story is buried in the buyback data.”

The economy has slowed, weakening the labor market and forcing the Federal Reserve last week to trim its benchmark short-term interest rate by a quarter percentage point as inflation edges up and amid ongoing tariff uncertainty.

Some economists even hint at possible stagflation, or weak economic growth coupled with higher inflation.

“This is the classic case where the stock market is not the economy,” Turnquist said. S&P 500 companies have seen double-digit earnings growth this year, exceeding expectations, and those increases will likely continue, even into 2026, he said.

Consumers remain resilient, and companies frontloaded inventory before tariffs, Turnquist said. Companies also have more agile supply chains after COVID-19, he said. Corporate profit margins linger in the 12% range, above the five-year average, and should stay elevated, he said.

More expected rate cuts and tolerance for inflation above the Fed’s 2% target also support companies, said Michael Wilson, chief investment officer at Morgan Stanley.

“Should the administration’s intention to (allow inflation to run slightly above target) play out next year while the Fed’s cutting rates, revenue and earnings growth could come in much stronger than expected,” he wrote in a note.

“This is classic early cycle as the Fed typically is focused on the weakness in the lagging labor market data as the equity market is focused on future improvement in earnings revisions/pricing power,” Wilson said.

Stock repurchases reduce the number of outstanding shares, which can make a company’s financials appear better and buoy its stock price.

A company earning $10 million a year with 100,000 outstanding shares has earnings per share of $100. If the company repurchases 10,000 shares, total outstanding shares drop to 90,000 and its earnings per share increases to $111.11 without any actual increase in earnings.

After the broad S&P 500 index plunged more than 15% in April on President Donald Trump’s initial tariff announcement, the S&P 500 recovered to all-time highs at record speed, partly due to strong corporate buybacks, some analysts said.

“Steady retail buying and a slow return of institutional demand also supported the rebound,” said Adam Turnquist, chief technical strategist for LPL Financial. “Corporate buybacks, arguably one of the less-discussed catalysts, likely provided an additional boost to the market’s quick recovery.”

Critics argue repurchases artificially inflate stock prices and benefit executives who receive equity-based compensation.

Buybacks also divert funds from investing in workers, growth and innovation, the Biden administration said when it introduced a 1% tax on most corporate buybacks for publicly traded companies in the United States. The tax was expected to rise to 4% and was meant to ensure rich corporations and people paid their fair share, to improve tax fairness and to reduce the deficit by closing loopholes.

Buybacks aren’t always bullish so investors should consider the signs, Vardy said. Here are some to look at:

• Track buyback yield: Look for a 10%+ buyback yield, or the value of a company’s share repurchases as a percentage of its market capitalization

• Watch insider activity: It’s bullish if corporate insiders are buying alongside the company.

• Follow the cash: Debt-fueled buybacks could be red flags.

• Find small-cap echoes: Look for lesser-known companies in the same business mimicking a large company’s repurchases on a smaller scale.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and  subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: Corporate buybacks rise despite record stock prices, uncertain economy