- Earnings season is coming to a close and Goldman Sachs analyzed troves of investor call transcripts to determine the three most important themes from the third quarter.
- Corporate executives had a lot to deal with during the quarter – from the ongoing US-China trade war to concerns of a slowing global economy.
- Here are the three biggest takeaways from the third-quarter reporting season, according to Goldman Sachs.
- Visit the Business Insider homepage for more stories.
With the latest earnings seasons approaching its end, Goldman Sachs took a look at the three biggest themes to take away from the third quarter.
Corporate executives had to grapple with a number of challenges during the period including uncertainty around the outcome of the trade war between the US and China, as well as a potential economic slowdown in major markets across the globe.
Companies affected by macro trends will often provide commentary during earnings calls on what’s going on in the broader economy and how it’s affecting their businesses.
Investors and analysts were eager to see how companies in sectors such as consumer products and manufacturing are weathering existing tariffs and preparing for additional duties as the trade war continues.
Heading into earnings season, there was also a focus on the slowing rate of share buybacks. Stock repurchase programs have been a major driver of the decade-long bull market.
Here are the three biggest takeaways from the third quarter, according to Goldman Sachs:
3. Policy uncertainty
- Thomas Peter/Reuters
Companies have been dealing with a lengthy bout of political uncertainty as the US-China trade spat carries on.
According to Goldman, executives broadly are optimistic on the economic outlook for 2020 based on uplifting consumer data. But they are still concerned about the outcome of the trade war, the firm said.
“Uncertainty remains high and executives expect to be dealing with US-China trade tensions for the foreseeable future. Consequently, inventories have declined and dealer demand has dropped,” Goldman’s analysts wrote in a note to clients on November 8.
2. Corporate spending
When companies are uncertain about the future, they typically think twice about capital expenditures and spending.
As a result of the recent political unpredictability, Goldman said that “many executives highlighted deferring capital expenditures as they approached investments with increased caution.”
The analysts added: “Firms also outlined plans to divert cash from capital projects and buybacks in favor of strengthening the balance sheet.”
S&P 500 cash spending fell to a decade-low in the second quarter as CEO confidence waned. The level stabilized during the third quarter, Goldman said.
3. Politics and the 2020 election
- Aaron Josefczyk/Reuters
The upcoming presidential election was also a key focus for companies this quarter, Goldman said.
In recent months, some of Wall Street’s biggest investors have called out democratic candidate Elizabeth Warren for her regulatory positions and wealth-tax proposal.
According to Goldman, while executives are planning for different outcomes in the upcoming election, they remained focused on long-term plans.
“Some managers discussed the difference between what is mentioned by politicians and what would eventually be implemented, expressing doubt that proposed policy changes would be realized,” the firm wrote.