When CEOs don’t feel confident, they usually don’t open up their wallets to spend.
And the lack of confidence floating around in Corporate America’s boardrooms — in large part fueled by President Trump’s trade war with China — may hit the U.S. economy and investors somewhat hard real soon. Cash spending on the part of S&P 500 companies is likely to fall by 6% in 2019, the largest year-over-year decline since 2009, according to a new report Friday from strategists at Goldman Sachs. The investment bank thinks 2019 cash spending by S&P 500 components on capital expenditures will rise by a paltry 1%, R&D by 2% and dividend growth to touch 5%.
The drop in cash spending will be led by a 20% collapse in spending on acquisitions and a 15% nosedive on share repurchases. Goldman Sachs isn’t expecting cash spending to bounce back materially in 2020, either.
Cash spending by S&P 500 companies is seen rising only 2% to $2.7 trillion in 2020, held back by a 5% decline in spending on share repurchases. Spending on capex, R&D, acquisitions and dividends is only expected to increase slightly.
CEO confidence is plummeting. pic.twitter.com/sKOE9w319c— Brian Sozzi (@BrianSozzi) October 18, 2019
“The persistence of high policy uncertainty combined with the upcoming U.S. presidential election will result in many corporate managers sitting on cash next year,” writes one of the report’s authors, Cole Hunter.
The data is hardly surprising, but still unnerving.
CEO confidence plummeted to the lowest level since the Great Recession in the third quarter, according to the Conference Board. Meanwhile, 53% of U.S. chief financial officers believe the U.S. will be in a recession by the third quarter of 2020, per a new Duke University study.
“Historically, growth in aggregate S&P 500 cash spending has been weaker during periods of high policy uncertainty,” Hunter says. “The combination of an ongoing trade conflict and next year’s U.S. presidential election will likely result in lingering uncertainty.”