Will the prospect of regulatory rollbacks, corporate tax breaks and increased infrastructure spending win the hearts and pocketbooks of big business? Or will the specter of higher interest rates force companies to do what they’ve been doing of all along, stay on the sidelines?
Right now signs point to a spending boom among business interests, despite concerns about rising interest rates and uncertainty about the incoming Trump administrations.
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Sidelines For Many
Historically over the past several years, spending on new factories, upgrading equipment or hiring new workers has been down.
There were exceptions. General Motors Co. (NYSE:GMC) and CSX Corp (NYSE:CSXC) both took out loans to prop up their respective pension plans. The Home Depot Inc. (NYSE:HDB) and Yum Brands Inc. (NYSE:YUMC) bought back shares of stock with money those companies borrowed.
Mostly, however, companies waited for signs of an improving economy that from their perspective never came.
Put Me In Coach
Now it seems many companies are rethinking their sideline posture in favor of putting themselves where the action is in the capital-expenditure game.
Among them, GameStop Corp. (NYSE:GMEC), which increased its capital spending in 2016 to $160 million from $125 million in 2013. The money will go to store remodeling and corporate expansion into new sectors such as collectibles.
This optimism could be a sign U.S. businesses see a brighter future and do not want to risk being left behind as competitors seek to catch up and overtake them.
Factors That Matter
As the new year and the potential for new spending in business gets underway, it will be worthwhile to notice how certain sectors perform. Oil prices, for example, will need to stabilize or rise. Otherwise energy companies will either curtail or slow down spending.
Equipment replacement is another area of concern. There is pent-up demand for new equipment in many sectors worldwide. If spending increases, equipment manufacturers will reap the benefit.
The Bottom Line For Investors
As experts and analysts look at the total picture for 2017, there is both good news and bad news in their predictions. U.S. Gross domestic product was under 2% in 2016. While many predict GDP in 2017 will be higher than in 2016, few think it will reach the 3.5% seen in the last quarter of last year.
Although the market should perform well in 2017, many experts would be surprised to see the double-digit returns that characterized 2016. To sum up, thanks to increased investment by major corporations and businesses alike, 2017 should be a “good year” just not necessarily a “very good year.”