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‘Signs of a new capex cycle’ emerge as S&P 500 companies report earnings, says BofA

Corporations within the S&P 500 index could also be coming into a brand new spending cycle as they face supply-chain constraints through the pandemic, with indicators of capital expenditure selecting up as they proceed to report outcomes for the third quarter, in accordance with BofA International Analysis.

“We see indicators of a brand new capex cycle forward,” BofA analysts mentioned of their earnings tracker report dated Oct. 31. That’s primarily based on round 40% of S&P 500 firms reporting capex to date.

Mentions of provide chains have soared throughout earnings requires the third quarter amid considerations over bottlenecks and associated inflationary pressures, in accordance with the report. In the meantime, the 2-year development fee for capex has turned optimistic for the primary time since COVID-19, the BofA analysts discovered, as firms search to regulate to provide challenges.


BofA International Analysis report dated Oct. 31, 2021

“With lingering bottlenecks within the financial system, we anticipate firms to extend capex to spice up effectivity, significantly on automation,” the BofA analysts mentioned within the word. “The capex pickup is bullish for small-caps, certainly one of our most popular present themes inside U.S. equities.”

The Russell 2000
RUT,
+2.65%
,
a U.S. equities index monitoring small-cap firms, rose 2.7% on Monday to complete simply shy of a document. The gauge has climbed greater than 19% this yr. 

Learn: Are supply-chain disruptions ‘transitory’? Odds are low so here’s where to invest, says an analyst

The S&P 500
SPX,
+0.18%
,
in the meantime, edged up 0.2% to log a document end, leading to year-to-date good points of twenty-two.8% for the U.S. giant cap index, FactSet knowledge present.

Capex has elevated 23% year-over yr for S&P 500 firms primarily based on third quarter outcomes to date, in accordance with BofA. That surpasses the 17% development seen through the second quarter on a year-over-year foundation.

A brand new capex cycle could also be rising following a surge in company spending on software program and knowledge processing tools that Oxford Economics cited in a report in September. The agency defined on the time that firms had been centered on technology-related investments to help distant work through the pandemic.

See: Corporate profit boom is driving spending in this key area, not office buildings

With third-quarter earnings now below means, S&P 500 firms are exhibiting a 15% enhance in capex on a 2-year development foundation, in accordance with the BofA report. That development fee drops to three% when excluding e-commerce large Amazon.com
AMZN,
-1.61%
,
the analysts mentioned.  

Labor and supply-chain challenges are costing Amazon billions of {dollars} within the pandemic, with the corporate nonetheless wanting so as to add employees to fulfill demand, MarketWatch has reported. Amazon’s inventory dropped after a third-quarter earnings miss and was down 1.8% in Monday afternoon buying and selling, in accordance with FactSet knowledge.

See: Amazon hired 628,000 people but is still short staffed

Nonetheless, a majority of S&P 500 firms have beat earnings estimates for the third quarter, the BofA report reveals. Earnings, led by power
XLE,
+1.72%

and financials
XLF,
+0.05%
,
proceed to “shock to the upside, beating consensus by 7%,” the analysts mentioned.

https://www.marketwatch.com/story/signs-of-a-new-capex-cycle-emerge-as-s-p-500-companies-report-earnings-says-bofa-11635797481?rss=1&siteid=rss | ‘Indicators of a brand new capex cycle’ emerge as S&P 500 firms report earnings, says BofA

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