Wednesday, March 26, 2014
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Stocks in Europe and Asia were broadly positive on growing hopes
that authorities in those regions were getting ready to implement
looser monetary and fiscal policies. The mood is expected to
carry through to the U.S. markets as well, with this morning's
stronger-looking Durable Goods reading adding to the sentiment.
The 'headline' Durable Goods reading came in better than
expected, though the report's internals were a bit squishy. The
component of the report that is generally considered a proxy for
business capital spending (non-defense capital goods excluding
aircraft) came in weaker than expected and the revisions to the
prior month's data were also negative.
Business capital spending has been the weakest link in the U.S.
recovery, though investment in equipment was up more than +10% in
2013 Q4 after an essentially flat read in Q3 and low single-digit
growth rates in the first half of the year. We saw a similar
trend on the software side in the GDP report, now part of the
intellectual property products account. The consensus expectation
is that business spending will ramp up in 2014, particularly in
the back half of the year, pushing GDP growth above the +3% level
and helping accelerate the pace of hiring.
We saw some tell-tale signs of capital spending growth in recent
months as companies have unveiled plans for full-year 2014.
) for among the notable operators that have announced big capex
ramp-up plans for this year. But the trend is hardly universal
and most companies remain content with either hanging on to their
enormous cash holdings or spending it on share buybacks and
Today's Wall Street Journal story about the letter written by
Larry Fink of
) to the CEOs of S&P 500 companies urging them to not
sacrifice long-term growth at the expense of short-term gains
through buybacks favored by activist shareholders is very
interesting. We will see if BlackRock's call will have any
lasting effect on corporate behavior, but the company's status as
the largest money manager in the world and its thus far friendly
posture to activist shareholders gives its call more credibility.
Director of Research