Nomura: 3 Reasons Why Business Spending Will Pick Up And Drive Stocks Higher

Ongoing worries about Europe and a weaker U.S. recovery have outshone what has been a stellar earnings season. The analysts at Nomura think the market may be overemphasizing these “macro headwinds” and underestimating the potential for corporate spending.

Businesses have been reluctant to invest during this uncertain recovery.  But in a recent note, Nomura gives three reasons why capital expenditures should pick up in the U.S.:

“One substantial potential component of 2012 global aggregate demand that markets may be underestimating is corporate capital spending – and no more so than in the US, where 1) capacity utilization has risen to well above levels that prevailed when the last US capex cycle (2003-07) kicked off; 2) top-line revenues remain robust even as of the current 1Q12 results season (at roughly 11% y-y); and 3) a remarkable US$2.0 trn in cash is available on non-Financial corporate balance sheets earning paltry returns.”

Furthermore, it also helps that corporate borrowing costs are at historically low levels.  Here’s a chart from Nomura:

attached image

Photo: Nomura Equity Research

Don’t Miss – Nomura’s Awesome Presentation: U.S. In The Cross Hairs >

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.