It's a Moment of Truth for U.S. Companies
by Oliver Renick
February 13, 2017, 12:56 PM ESTFebruary 13, 2017, 3:21 PM EST
Say what you will about Donald Trump’s economic prescriptions, it’s hard to argue he hasn’t been a boon for corporate sentiment. A looming question for investors is how that buoyancy will translate when it comes to business spending.
Cheerfulness is spreading — literally. Executives used the word “optimistic” on a record 51 percent of earnings calls this quarter, according to an analysis by Bank of America Corp. that goes back to 2003. They described things as “better” more often than “worse” or “weaker” at the highest rate in two years.
Other measures of corporate mood turned north since Election Day. The National Federation of Independent Business’s index jumped 7.4 points last month to 105.8, the biggest gain since 1980. Fourth-quarter earnings guidance showed signs of life, with the tally of companies raising 2017 forecasts outnumbering those that cut by the most since 2011 at this time of the year.
A logical question is whether improving psychology 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.
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