Say what you will about Donald Trumpâ€™s economic prescriptions, itâ€™s hard to argue he hasnâ€™t been a boon for corporate sentiment. A looming question for investors is how that buoyancy will translate when it comes to business spending.
Words of optimism are multiplying â€” literally. Executives used the word â€œoptimisticâ€ on a record 51 percent of earnings calls this quarter, according to an analysis by Bank of America Corp. strategists that goes back to 2003. They also described things as â€œbetterâ€ more often than â€œworseâ€ or â€œweakerâ€ at the highest rate in two years.
Other measures of corporate sentiment also turned north since Election Day. The National Federation of Independent Businessâ€™s index jumped 7.4 points last month to 105.8, the biggest jump since 1980. Fourth-quarter earnings guidance showed signs of life, with the tally
of companies raising 2017 forec-
asts outnumbering those that cut by the most since 2011 at this time of the year.
A logical question is whether improving sentiment might lead S&P 500 companies to stop blowing all their cash on buybacks and dividends and start plowing it back into plants and equipment. Morgan Stanley says it might. An index it compiles tracking the three-month average of capex plans in Federal Reserve surveys climbed in January to hits highest level since 2001.
â€œBusiness sentiment surveys have raced higher in the wake of the presidential election while capex plans have inflected higher,â€ economists led by Ellen Zentner wrote. â€œThe increase in capex plans suggests this gain in investment should extend through mid-year.â€ The Commerce Departmentâ€™s report on the economy in the fourth quarter showed business spending on equipment rose 3.1 percent for the first gain in five quarters.
Analysts predict expenditures at S&P 500 companies this year will climb to $76 per share, the highest since 2014, when spending totaled $78, data compiled by Bloomberg show. Trailing 12-month cap-ex by S&P 500 companies has fallen for two years â€” hovering around $72 per share the past six months â€” after soaring 61 percent in the first five years of the bull market.
With 358 members of the S&P 500 reporting earnings, 72 percent have shown earnings growth; final numbers will show market-cap weighted earnings in fourth-quarter rose 10 percent from a year ago, according to data compiled by Bloomberg.
â€œMuch of the improvement weâ€™ve seen is in the sentiment indicators, but what weâ€™re really looking to see is that coming through in actual corporate activity,â€ Richard Turnill, managing director and global chief investment strategist at BlackRock inc., said in an interview on Bloomberg Television Monday. â€œThatâ€™s what the market needs to see to move higher.â€