Corporate Cash Reaches a Record High.

Corporate Cash Reaches a Record High.

We live in a period of all-time highs. NYSE margin debt is at an all-time high, US debt is at an all-time high and the S&P 500 and DOW are at all-time highs. 

However, interest rates remain at all-time lows. So then, it is surprising to find out that cash & short-term investments on the balance sheets of S&P 500 companies, excluding financials, have reached a level not seen before. 

Indeed, according to data from Factset the S&P 500 cash and short-term investment balance hit $1.36 trillion at the end of the third quarter, excluding financials; up 18% year-on-year.

The good news is that this was positive for shareholders as cash distributions in the form of dividends and net repurchase of stock hit an aggregate of $169.6 billion for the quarter; up 25.6% year-over-year .Meanwhile, cash flows from operations amounted to $351.3 billion for the period, an increase of 7.2% year-over-year.

Unfortunately, this indicates that companies are just not investing for growth, which is worrying.

In a period of low interest rates, designed to spur growth, companies would rather return cash to investors through stock repurchases, albeit at a time when the market is at an all-time high and it is likely that many stocks are overpriced.

Is this bad management, or are management teams just unable to find the right opportunities for investment and expansion? If it’s the latter then perhaps this recovery is not as robust as we thought.

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