Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Capital spending outlook another worry ahead of earnings

Stock Markets Oct 05, 2019 01:20PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A Wall St. street sign is seen near the NYSE in New YorkNYSE in New York
 
US500
-2.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
-1.66%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PRU
-2.29%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Caroline Valetkevitch

NEW YORK (Reuters) - Investors are preparing for more cautious capital investment outlooks from U.S. companies as worries mount heading into earnings season about the possibility of an economic recession.

Capital expenditure increases have been weaker than last year, when corporate tax cuts helped to bolster spending, and some strategists say they may even fall short of Wall Street's expectations given the concerns about the economy and a prolonged trade war between the United States and China.

Less spending on technology, machinery and other equipment would suggest corporate executives are less confident in the economy than they had been, another potential negative for the stock market, which has fallen this week amid a series of weak economic reports.

Capital expenditures are expected to have increased just 3.0% in the third quarter from a year ago, which would be the lowest since the second quarter of 2017, when capex declined slightly, according to data based on analysts' estimates compiled by Refinitiv's research senior manager, David Aurelio.

That estimate drops to 1.1% in the fourth quarter, and year-over-year declines are projected in some quarters of 2020.

"It's very likely that capex spending is going to be below expectations," said Kristina Hooper, chief global market strategist at Invesco in New York. "We are in a state of heightened economic policy uncertainty. That tamps down business investment."

Strategists said spending plans will be of particular interest as S&P 500 (SPX) companies discuss their results for the third quarter in the weeks ahead.

The reporting period begins with big banks including JPMorgan Chase (N:JPM) and others reporting on Oct. 15.

Results overall are expected to be relatively weak, with analysts forecasting earnings for S&P 500 companies to have declined 2.7% in the third quarter from a year ago, based on Refinitiv's data.

Recent dismal economic indicators have fueled concerns that the United States was flirting with a recession.

Upbeat jobs data offered some relief for investors on Friday, but it came on the heels of a report this week showing manufacturing activity plunged to a more than 10-year trough in September. Other data showed U.S. services sector activity slowed to a three-year low in September.

"There is a correlation between CEO confidence and capex. And right now we've seen CEO confidence decrease, so again it's going to be a challenging environment for companies to go ahead and spend," said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.

While the trade war has eroded business confidence, easing monetary policy is expected to help because it reduces borrowing costs for businesses.

The U.S. central bank cut rates last month after reducing borrowing costs in July for the first time since 2008. Bets the Federal Reserve will cut rates later this month by 25 basis points were at about 77% on Friday, compared to 39.6% on Monday, according to CME Group's FedWatch tool.

"This talk of whether or not we're going into a recession, that enforces prudence" by companies, said Quincy Krosby, chief market strategist at Prudential Financial (NYSE:PRU), based in Newark, New Jersey. "Ultimately what they're worried about is revenue growth."

Capital spending outlook another worry ahead of earnings
 

Related Articles

Micron Earnings Beat, Revenue Misses In Q4
Micron Earnings Beat, Revenue Misses In Q4 By Investing.com - Sep 29, 2022

Investing.com - Micron (NASDAQ:MU) reported on Thursday fourth quarter earnings that beat analysts' forecasts and revenue that fell short of expectations. Micron announced...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email