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Bob Carey
Chief Market Strategist
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  One Measure Of Corporate Cash Holdings
Posted Under: Conceptual Investing
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View from the Observation Deck  
  1. In Q1'21, S&P 500 Industrials (Old) cash and equivalents stood at $1.81 trillion (see chart). 
  2. The all-time high was $1.89 trillion, set in Q4'20.
  3. From Q1'16 through Q1'21, cash holdings rose from $1.35 trillion to $1.81 trillion, or a gain of 34.07%. 
  4. The S&P 500 Index posted a cumulative total return of 112.71% over the same period, according to Bloomberg.
  5. What is interesting is that S&P 500 Index companies spent a combined $5.65 trillion on stock dividend distributions and stock buybacks over that same period (not shown in chart), according to S&P Dow Jones Indices. Stock buybacks accounted for 58.23% of the $5.65 trillion. 
  6. Keep in mind that S&P 500 companies also utilize capital for such things as mergers and acquisitions, investment in plants and factories, and to purchase software and equipment.
  7. Capex spending, for example, is expected to surge more than 12% year-over-year to $689.1 billion in 2021, based on 427 companies in the index offering spending estimates, according to Investor's Business Daily. Some political pundits, such as Senator Elizabeth Warren, would rather see companies reinvest their profits back into the business than use the capital for stock buybacks. 
  8. Seeing S&P 500 Index cash holdings continue to rise over time suggests that Corporate America, overall, is on solid footing, in our opinion.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance.   

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Posted on Tuesday, August 3, 2021 @ 2:11 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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