While the economic outlook was cloudy, corporations plowed their cash into buying their own shares to maintain share prices, as we documented in “Company Stock Buybacks Set Record, Spark Investor Complaints” (23 May 2023) and “Corporate Buybacks: The Spree Continues” (30 May 2023), among other articles.
Now, with inflation closing in on the U.S. Federal Reserve’s 2-percent target and the threat of recession fading, companies are redirecting their money into expansion projects.
The shift to investment in technology and infrastructure “has been a hallmark of the second-quarter earnings season,” Bloomberg noted.
Companies boosted those investments by a median 15 percent during the period and 75 percent of S&P-listed companies announced more projects or investments than analysts had expected, Bank of America (BoA) data shows.
In contrast, stock buybacks have fallen 36 percent, year on year, among firms that have released their second-quarter results. Announced plans to buy back stock are off by 15 percent this year to date, according to research firm Birinyi Associates.
Goldman Sachs analysts predict that buybacks by S&P companies will lag capital investments for the first time since 2020 this year.
“Corporate America is reinvesting,” BoA analysts wrote in a 31 July note. “The reinvestment cycle will ultimately lead to increased productivity, which will be the main driver of earnings growth going forward, vs. the last decade’s financially-engineered growth.”
Goldman Sachs strategists have forecast that S&P corporations will budget more than $900 billion for capital expenditures now through 2024, exceeding the budget for buybacks.
TREND FORECAST: As we have been detailing each week in The Trends Journal, artificial intelligence will significantly change the corporate landscape. Trends are born, they grow, mature, reach old age and die. The AI trend is in its infancy, and we forecast that much of the corporate investments will target AI efficiency to replace as much of its workforce as possible so as to increase profit margins.