Capital spending outlook another worry ahead of earnings

Investors are preparing for more cautious capital investment outlooks from U.S. companies as worries mount heading into earnings season about the possibility of an economic recession.

Capital expenditure increases have been weaker than last year, when corporate tax cuts helped to bolster spending, and some strategists say they may even fall short of Wall Street’s expectations given the concerns about the economy and a prolonged trade war between the United States and China.

Less spending on technology, machinery and other equipment would suggest corporate executives are less confident in the economy than they had been, another potential negative for the stock market, which has fallen this week amid a series of weak economic reports.

Capital expenditures are expected to have increased just 3.0% in the third quarter from a year ago, which would be the lowest since the second quarter of 2017, when capex declined slightly, according to data based on analysts’ estimates compiled by Refinitiv’s research senior manager, David Aurelio.

That estimate drops to 1.1% in the fourth quarter, and year-over-year declines are projected in some quarters of 2020.

“It’s very likely that capex spending is going to be below expectations,” said Kristina Hooper, chief global market strategist at Invesco in New York. “We are in a state of heightened economic policy uncertainty. That tamps down business investment.”

Strategists said spending plans will be of particular interest as S&P 500 companies discuss their results for the third quarter in the weeks ahead.

The reporting period begins with big banks including J.P. Morgan Chase and others reporting on Oct. 15.