Corporate America’s love affair with the Trump administration’s tax overhaul is still going strong, and it’s pushing spending plans to multiyear highs.
In a quarterly survey released by Deloitte LLP Wednesday, a record number of chief financial officers said that now is a good time to take greater risks, pushing up growth expectations for revenue, earnings, capital spending and hiring. That confident tone is a response to the tax bill passed in December, according to Sandy Cockrell, the Deloitte Global CFO Program leader.
Deloitte collected responses from 155 CFOs, most from companies with more than $1 billion in annual revenue. More than a third of the finance chiefs worked for manufacturing companies, a sector set to take a hit from China’s retaliatory tariffs. The survey was conducted from Feb. 12 to Feb. 23, when U.S. stocks were recovering from their first correction in two years.
Even after the equity sell-off, the CFOs were more positive than ever. Nine in 10 respondents said economic conditions were good or very good, a high for the survey, which Deloitte began conducting in 2010.
It’s the economy’s strength that underpins earnings optimism. Analysts surveyed by Bloomberg expect first-quarter profits to rise by 17 percent. The S&P 500 trades at 21.1 times reported earnings—11 percent above the five-year average but down from a recent eight-year peak of 23.3.
“Clearly, there’s a high desire for investment in the U.S., and that is coming from just the structure of tax reform,” Cockrell said. “They are expecting higher domestic wages, almost 40 percent are anticipating and planning for higher and front-loaded capital investments, and about a third higher R&D. What they’ve said is because of tax reform they’re going to take these actions.”
Still, the finance chiefs weren’t entirely comfortable with the stock market. As the S&P 500 Index clawed back from its recent lows, 76 percent of them said equities as a whole are overvalued. That’s an 8 percentage point drop from the prior quarter, but it still exceeds the survey’s two-year average for the question.
Not surprisingly, the CFOs take a less skeptical view of their own firm’s shares.
“There’s a dichotomy there versus the broader market and CFOs thinking about their own companies. It’s part of their DNA,” Cockrell said. “If you’re a CFO and telling people your stock’s overvalued, you’re not going to be the CFO for very long.”
