Tags: Brown | capex | spending | market

Blogger Brown: US Corporations Need to Open Up the Purse Strings

By    |   Thursday, 20 March 2014 02:28 PM

In order for the five-year-old bull market to continue lumbering upward, capital spending by America's companies has to increase, according to Josh Brown, CEO of Ritholtz Wealth Management and author of "The Reformed Broker" blog.

Brown told Yahoo U.S. stocks are already selling slightly above their long-term valuation average.

"If you're bullish now, then the bull case can't be more multiple expansion, which is what last year was," he said, noting the S&P 500 experienced 8 percent profit growth in 2013, while stock prices went up about 32 percent.

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"You probably don't get a repeat of that, so you need a capex cycle to kick in, which should coincide with interest rates going higher."

In an environment of rising capital expenditures, Brown said industrials and technology stocks would be the primary beneficiaries, with a nod to financials as well if interest rates tick up gradually.

He told Yahoo a spurt of capital spending by corporations is long overdue because of the slow economic recovery. "It's been restrained for five years."

A new Business Roundtable survey of American CEOs shows companies might be looking at boosting their spending, but it likely will not help economic growth or jobs, The Wall Street Journal reported.

Nearly half of the CEO said they plan to increase spending in the next six months, but only 37 percent said they would hire more workers.

The business leaders predicted economic growth of 2.4 percent in 2014, which is "about as suboptimal as we think we could be achieving in this current environment," according to Randall Stephenson, chairman of the trade group and also CEO of AT&T.

Credit Writedowns, a website that follow global credit markets, asserted that a recent increase in capex spending may be the source of sudden loan growth in the United States.

"The key to this change in trend is that improvements in loan growth have been primarily driven by a sudden jump in corporate lending," Credit Writedowns concluded.

"Why is corporate America increasing its borrowing all of a sudden? The most likely answer is the improvement in capex, which is evidenced by firmer capital goods spending by U.S. companies."

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In order for the five-year-old bull market to continue lumbering upward, capital spending by America's companies has to increase, according to Josh Brown, CEO of Ritholtz Wealth Management and author of "The Reformed Broker" blog.
Brown,capex,spending,market
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2014-28-20
Thursday, 20 March 2014 02:28 PM
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