Cautious US Companies ‘Hoarding’ Cash
$DIA, $SPY, $QQQ, $VXX
US companies have returned to hoarding cash due to mounting economic and geopolitical fears, a indication of a business-investment pullback.
The UK’s Brexit vote, a sluggish US economy and a weak global economy combined to lead companies to delay investment decisions and just hoard their cash, the Association for Financial Professionals said in a new report.
The association’s Corporate Cash Indicators index (CCI) rose 9 points in the Quarter to plus 8, a sign of a significant weakening in business confidence. On a Y-Y basis, the indicator rose 4 points to plus 14.
The index measures recent and expected changes in corporate cash balances by calculating the percentage of survey respondents reporting an increase, or an expected increase, in cash holdings, minus the percentage reporting a decline, or an expected decline. When the index falls, it suggests companies are feeling more confident, while a rise suggests caution and pessimism.
The data was released as US companies issue cautious and pessimistic Q-3 earnings outlooks.
When companies feel upbeat about the outlook, they are more likely to deploy their cash on mergers and acquisitions, or dividend payouts or share buybacks, while pessimistic companies tend to try to just hoard cash.
BlackRock Inc. (NYSE:BLK) warns that it is going to be really hard for any asset class to give investors returns above a mere 6 percent in the coming years, Bloomberg News reported. In fact, according to BlackRock Inc.’s Global Chief Investment Strategist Richard Turnill, most will not even scrape 5%.
“Our 5-year return assumptions have steadily moved lower since the financial crisis, amid weak global growth prospects, easy monetary policy and rising valuations,” he writes. “We have lowered our assumed returns for most fixed income assets, following a drop in yields, and rise in valuations in Q-2.”
Tuesday, the US major stock market indexes finished at: DJIA -19.31 at 18473.75, NAS Comp +12.42 at 5110.05, S&P 500 +0.70 at 2169.18
Volume: Trade was light again, with about 802-M/shares exchanged on the NYSE, Breath was positive.
- Russell 2000 +7.1% YTD
- S&P 500 +6.1% YTD
- DJIA +6.0% YTD
- NAS Comp +2.1% YTD
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