This morning Factset Research is reporting that:
Cash & short-term investment balances in the S&P 500 (ex-Financials) rose by 18.0% year-over-year and settled at a balance of $1.36 trillion at the end of Q3 2013.
When we hear market pundits talk about “cash on the sidelines” they are usually talking about money yet to make it into the markets, sitting in money markets or under pillows, but in this instance, this cash is sitting in the coffers of publicly traded companies, with managements and boards who have yet to find anything useful to do with aside from buying back their own stock, paying dividends and likely overpaying for acquisitions.
Yet a second part of the research report suggests:
major factor for cash growth was large cash inflows from operations. S&P 500 companies generated $351.3 billion in free cash flow in Q3, the second largest amount in at least ten years.
So this is reiterating a lot of what we know, companies continue to cut cost, running very lean and have either spurned capital investments, hiring and r&d, or they have just become a lot more efficient as the result of productivity gains from technology, or obviously some combination of all of the above.
At what point has the easy money environment that has allowed for a good bit of this financial engineering going to get companies back focused on how to grow the top line?? Will 2014 be the year where corporate America returns to capital investment in search of revenue growth?
Consensus estimates of sales growth for S&P 500 companies for 2014 is 2-5%. As Enis pointed out in the Morning Word on Wednesday, many of the large multinationals have struggled with stagnant international operations. Sector distinctions have made a big difference too. Metals and mining, utilities, and consumer staples have seen negative or little growth, while financials, parts of consumer discretionary, health care and parts of tech have seen decent sales growth.
Tech is a good example of the dichotomy in a shifting world that looks more like companies vying for a slice of a stable revenue pie rather than a growing revenue pie. Software and internet companies and more nimble newcomers have been big winners in 2013 (MSFT, AMZN, GOOG, FB, ADBE, PCLN, WDAY, etc.), while hardware giants and old service behemoths have struggled mightily (IBM, ORCL, CSCO, EMC, INTC, etc).
As the market goes higher, investors are likely to be a bit more discerning about how the companies they own get their growth, for now though rising tides have been lifting all boats.