The biggest American companies will drastically reduce cash spending in 2020, Goldman Sachs said, as signs of a coronavirus-led recession pile higher.
- The biggest US companies will reduce cash spending by an annual record of 33% during 2020, Goldman Sachs said in a note Friday.
- Analysts expect buybacks and dividends to also decline sharply in the year, falling by 50% and 23%, respectively.
- Goldman Sachs does not expect all firms to slash dividends during 2020. Companies like J&J and P&G hiked their dividend payments last week by 6.3% and 6.0%, respectively.
- In the coming week, 96 companies listed on the S&P 500 (including six Dow-30 components) are scheduled to report first-quarter results.
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The biggest American companies will drastically reduce cash spending in 2020, Goldman Sachs said in a note Friday, as signs of a coronavirus-led recession pile higher and higher.
"We forecast S&P 500 cash spending will decline by an annual record 33% during 2020 as firms prioritize liquidity in a worsening economic environment," analysts said in the note.
This earnings season, less than a tenth of the S&P 500 firms have reported their first-quarter so far and the results have generally disappointed relative to tepid expectations, the note said.
For companies that have already reported, profits have fallen almost 15% on average. If this decline holds for the rest of the quarter after the remaining companies report results, it would be the largest year-over-year profit decline since the third quarter of 2009, during the heart of the financial crisis, FactSet reported.
"Buybacks and dividends will also decline sharply in 2020, falling by 50% and 23%, respectively," analysts led by David Kostin predicted in the note.
The analysts also expect a 15% earnings per share decline in the first quarter, followed by a 123% plunge in the second quarter. They noted that most investors are already looking ahead to the earnings per share figures in 2021.
However, Goldman Sachs does not expect all firms to slash dividends during 2020. For instance, last week, companies like Johnson & Johnson and Procter & Gamble hiked their dividend payments by 6.3% and 6.0%, respectively.
The analysts also predict that:
- Capital expenditures will decline by 27%.
- Research and development by 9%.
- Cash acquisition spending will fall by 49%.
- This in turn will lead to a 26% plunge in investment for growth.
After a dramatic plunge in March, the US stock market has recovered in April, and looks relatively unshaken by the impending recession right now. This is down largely, it seems, to the Federal Reserves willingness to show it will go to unprecedented lengths to stimulate the economy and avert further market disruption. After falling into a bear market in March, the S&P 500 has surged back into bull market territory, gaining 29% in just over three weeks.
In the upcoming week, 96 companies listed on the S&P 500 (including six Dow-30 components) are scheduled to report first-quarter results.