Goldman Sachs Predicts Record Cuts to Corporate Cash Spending in 2020

According to a recent Goldman Sachs press release, the recession prompted by the coronavirus will force the biggest American companies to reduce their cash spending this year. 

The note predicted an annual record decline of 33% in S&P cash spending, as companies will instead prioritize liquidity as a result of the recession. 

Although fewer than a tenth of S&P 500 firms have reported their first-quarter earnings, those that have released their results have confirmed low expectations. Companies that have already reported their results have shown an average drop of 15% in profits. 

According to a separate financial report by FactSet, if the decline were to continue as other companies report their results, we would see the largest year-over-year profit decline since 2009’s third quarter. 

“Buybacks and dividends will also decline sharply in 2020, falling by 50% and 23%, respectively,” Goldman Sachs analysts reported. 

The report also predicted a 123% drop in earnings per share in the second quarter. As a result, investors are looking ahead to try to predict earnings per share figures in 2021.

In spite of the overall decline, Goldman Sachs predicted that some firms would not be forced to slash dividends this year. In this first quarter, Johnson & Johnson and Procter & Gamble each raised their dividend payments by 6.3% and 6.0% respectively.

In the report, Sachs analysts also predicted an overall 49% drop in cash acquisition spending and a 26% plunge in investment for growth. 

The good news: in spite of its dramatic plunge in March, the U.S. stock market appears to have recovered in April. The S&P 500 has risen back into the bull market territory after an impressive 29% gain in a little under a month. 

Source: Business Insider

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