June 29, 2022

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Wall St Week Ahead-‘Robust’ corporate cash may buoy stocks after rocky quarter

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NEW YORK — As the U.S. stock market ends a rocky first quarter, investors are looking at what could support equities in the coming months – with high cash levels at companies one potential boost as executives deploy resources for share buybacks, dividends or deals.

The S&P 500 posted its first quarterly loss since the beginning of the pandemic, although it rebounded in March, reducing the benchmark index’s year-to-date decline to about 5% from as much as 12.5% at the quarter’s low point.

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The outlook for stocks is still threatened by rising interest rates as the Federal Reserve tightens monetary policy, as well as by spiking inflation and uncertainty over the war in Ukraine. The ability of companies to deploy cash could help soothe investors about some of that unease.

“While cash levels are off the highs from last year, they are still well above the pandemic levels and remain supportive for buybacks, dividends and M&A, which are all shareholder friendly activities,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

Company plans to deploy their cash could become more clear in the coming weeks as they report first-quarter results, which are expected to show a 6.4% increase in S&P 500 company profits, according to Refinitiv IBES.

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Cash levels have risen as companies were cautious spenders during the pandemic, while corporate cash flow margins have been expanding in the past decade, strategists said.

Since peaking at just over $2 trillion in early 2021, cash on S&P 500 company balance sheets has dipped to about $1.9 trillion, according to Truist. But that remains well above…

Reuters

2022-04-03 09:00:37

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