Salient to Investors:
Cash and marketable securities are at a record $1.73 trillion, while capital spending in the most recent quarter rose by the least since March 2010.
Nick Raich at Earnings Scout said public outcry will erupt if companies do not spend and create jobs.
Economists and money managers said the cash hoard is at a record in part because of rising corporate profits, cost savings imposed during the financial crisis in 2008 and 2009. Europe’s recession, China’s slowing economy and a 35 percent tax awaiting companies when they bring money earned overseas back to the US.
Diane Swonk at Mesirow Financial said the economy is not yet growing rapidly and more consistently, when companies would be investing like crazy.
Walter “Bucky” Hellwig at BB&T Asset Mgmt said businesses are not laying people off, but not replacing those that quit.
Neil Dutta at Renaissance Macro Research said so long as borrowing costs remain low, companies won’t feel compelled to drive down their cash balances in any meaningful way. Dutta said companies are not investing because their demand backdrop is weak.
71 percent of S&P 500 companies so far reporting beat analysts’ earnings estimates in Q1. Matt McCormick at Bahl & Gaynor says fewer than half beat sales projections, leaving little incentive to spend to expand production.
Economists expect the US economy to slow to a 1.6 percent pace in Q2, while growth has averaged 2.1 percent year-over-year since the recovery began in June 2009, versus the 2.7 percent average in the previous expansion.
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