Under tariff disruptions, U.S. corporate capital expenditures unexpectedly remain strong, providing short-term support for U.S. stocks
After Trump announced the tariff increase, about 71% of the Russell 3000 index component companies maintained their 2024 capital expenditure guidance, indicating that U.S. corporate capital expenditures are unexpectedly resilient. Despite market concerns over the uncertainty of tariffs, many companies are still advancing their investment plans, driving a short-term rebound in U.S. stocks. Max Gokhman from Franklin Templeton pointed out that capital expenditures will boost revenue and provide a positive impetus for the stock market in the short term. However, the long-term uncertainty of the trade war may still put pressure on U.S. economic growth
According to the Zhitong Finance APP, the constantly changing tariff measures by U.S. President Trump have brought about significant uncertainty. The market was once concerned that these uncertainties might halt U.S. companies' spending on machinery and real estate, but it now seems that this concern may have been exaggerated.
Following a record investment by U.S. companies in business expansion in the fourth quarter of 2024, many companies are still actively pursuing their investment plans—this is a positive signal in the strong rebound of U.S. stocks since last month's low. Data shows that since Trump announced large-scale tariffs on trade partners on April 2, causing market turbulence, about 71% of companies in the Russell 3000 index that provided capital expenditure guidance have maintained their capital expenditure guidance for 2024, approximately 8.5% of companies have raised their guidance, 18% have lowered their guidance, and only 3% have withdrawn their guidance. Among them, the industrial sector has the highest number of companies maintaining capital expenditure plans during this earnings reporting period, leading other industries in maintaining capital expenditure guidance.
Max Gokhman, Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, stated: "The capital expenditure of U.S. companies will naturally boost revenue, thereby providing a short-term positive push to the stock market, as investors tend to reward revenue growth more than punish companies that increase spending for reasonable purposes."
Max Gokhman’s remarks are supported by data. A basket of companies with the "most capital expenditure," compiled by Goldman Sachs, has risen 2.1% since early April, in line with the performance of the S&P 500 index.
Although the S&P 500 index has rebounded as tariff tensions eased, Max Gokhman also pointed out that the long-term outlook for the market remains uncertain, as the trade war could escalate at any time, potentially putting pressure on U.S. economic growth.
Economic data seems to have begun reflecting the negative impacts of Trump's tariff measures. In April, U.S. manufacturing activity recorded its largest contraction in five months, with scarce orders and tariff impacts leading to a decline in output, marking the most severe downturn since 2020. Recent surveys from the Kansas City, New York, and Philadelphia Federal Reserves indicate that business activity continued to contract in May, although the contraction was slightly less than in April.
Against the backdrop of mixed economic data, the signs of U.S. companies maintaining capital expenditure plans are particularly noteworthy. Nick Pinchuk, President and CEO of Wisconsin-based transportation industry manufacturer Snap-on Inc., stated: "Despite so much uncertainty, if you are a manufacturing company, you inevitably need to adjust your supply chain, so I believe most industrial companies will at least maintain their capital expenditure." He added that one clear signal from the tariffs is that "you need to expand your business in the U.S." He expects the company's capital expenditure to grow by 19% this year compared to last year.
Tech giant Alphabet (GOOGL.US) previously reaffirmed its capital expenditure guidance for this year at $75 billion. Meta (META.US) even raised its capital expenditure guidance for this year from $65 billion to $72 billion In addition to large companies, this trend also exists among small companies. Texas-based robotics company Apptronik recently raised $350 million from investors including Alphabet to expand the mass production of humanoid robots. Ravin Gandhi, founder and CEO of Glenborn Partners, a fund focused on technology, consumer, and manufacturing investments, stated, "They (Apptronik) have received over $1 billion in orders from domestic automakers and logistics companies, so we can still feel a strong sense of ambition and 'animal spirits' in the investment field."
