Bosses in corporate America are losing faith in the future of the American economy.
How they feel about the economy has fallen to its lowest level since the financial crisis back in 2008-2009, according to a recent report from Wall Street giant Goldman Sachs.
In other words, they don’t just feel bad. They feel awful.
Corporate Confidence Sucked Away
This absence of optimism comes as uncertainty over economic policies has risen, and while Congress is more divided than ever.
“Last month global economic policy uncertainty notched its highest reading in at least 20 years,” the Goldman report states.
That lack of certainty is primarily due to the plethora of trade wars and the rise in populist politics. Together those new realities mean it is increasingly hard to forecast what governments will do tomorrow, let alone next year.
When the boss hasn’t got the remotest idea how the economic landscape will look even a few days ahead it is hard to plan to make money.
Already weak growth in corporate profits has also added to the gloom in the corner office, the Goldman report states.
“Misery in the Management” Could Migrate to Investors
Managers getting stuck in a stew of misery is lousy news for investors.
That’s because CEOs look set to cut back how much cash gets returned to investors in the form of dividends and share buybacks.
The Goldman report explains.
- “The persistence of high policy uncertainty combined with the upcoming US presidential election will result in many corporate managers sitting on cash next year.”
By sitting on cash, the report’s authors mean that companies won’t be sending as much of it back to shareholders in higher dividends and share buybacks. In fact, those buybacks will likely get cut by 5% next year, Goldman states.
That’s terrible news because historically share buybacks by financially flush companies have been beneficial to investors. If the buybacks slow down so will your portfolio.The report explains:
- “Over the long term, firms returning the most cash to shareholders via buybacks and dividends have performed best.”