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Investing.com - Investors have been focused during the current quarterly earnings season on whether elevated economic uncertainty wil lead companies to pull back on investment plans, although guidance so far has been "limited", according to analysts at Goldman Sachs.
U.S. President Donald Trump has moved to slap steep tariffs on both friends and adversaries alike, but he later postponed the levies for 90 days following deep ructions in stock and bond markets.
Still, concerns have remained that the duties could spark a potential downturn in the U.S. economy. Many businesses have flagged worries that this could persuade households to rein in expenditures, while several companies have noted that the on-and-off nature of the tariffs has made it difficult to craft future spending.
In a note to clients, the Goldman Sachs analysts led by David Kostin estimated that very 100-increase in policy uncertainty is associated with a roughly 10% reduction in cash spending growth, all else being equal.
"The effect of uncertainty is the largest on buybacks and cash mergers and acquistions, following by capital expenditures," the brokerage wrote.
The strategists recently slashed their cash spending forecast for S&P 500 companies to $3.8 trillion this year -- indicating growth of over 5% instead of an earlier projection of more than 11% -- due to higher uncertainty and weaker earnings.
Growth in capital expenditures is tipped to be strongest, although this is largely dependent on plans by tech companies like Google-owner Alphabet (NASDAQ:GOOGL) and Facebook-parent Meta Platforms (NASDAQ:META) to invest heavily in building out their artificial intelligence capabilities, the Goldman analysts said. The so-called "Magnificent Seven" mega-cap tech names now account for nearly a fourth of total S&P 500 cash use and accounted for half of the 10% growth in S&P 500 cash spending last year, the Goldman analysts said.
"While it is possible that these firms cut capital expenditures amid an economic growth slowdown, recent management commentary suggests companies plan on taking a long-term approach to AI investments," they said.
The analysts are also anticipating more modest growth in buybacks and dividends.
"We expect investors will continue to reward firms returning cash to shareholders relative to those companies investing for growth," they said. "This pattern typically occurs when economic growth is slowing or potentially entering recession and has repeated in recent months."