Capex as a catalyst
Improved business confidence and recent tax legislation are compelling corporations to reinvest their cash flows in their businesses. We believe this is a positive signal for economic growth.
3 mins Reading time
Published on 02 February 2026
Reinvesting capital is key for U.S. corporations to remain competitive and grow their businesses. But timing these expenditures often depends on the economic cycle and expectations about future business conditions. In the early part of 2025, tariff uncertainty weighed negatively on these decisions. However, since the passage of last year’s pro-growth legislation, which includes the full expensing of capital expenditures (capex), we’ve seen a pickup in capex by U.S. corporations.
While there are many measures of capital investment, nonresidential fixed investment is an important indicator of economic health and business confidence. It represents spending on fixed assets, including structures, equipment and intellectual property products, such as research and development and software. For the first time in four years, we’ve seen this metric increase for three consecutive quarters. Another proxy for capex — capital goods new orders and shipments — is growing at its highest annual rate in three years.
We expect the improving economic outlook to support this strengthening capex trend. While corporate spend has focused on technology given the artificial intelligence race, we believe capex will broaden to include equipment manufacturing of aircraft, auto and power generation. Historically, rising capex has been a catalyst for stronger economic growth, and we expect that pattern to hold in 2026.
880019 Exp : 02 February 2027
YOU MIGHT ALSO LIKE
Although companies benefiting most directly from AI-related capital spending are the main drivers of higher earnings, strength is no longer confined to that group. Earnings across the broader market remain solid and are expected to grow more than 10% this year and next, suggesting the risk of concentrated market leadership may not be founded.
After sluggish job growth in 2025, investors are looking for signs that the labor market may be stabilizing. With consumer spending driving 70% of economic activity, an improving labor market is essential to sustaining economic growth.
Global equities have risen an annualized 11% since 2020 despite repeated shocks, as resilient growth and earnings have helped markets recover from periods of volatility. While the U.S.-Iran conflict poses near-term inflation and growth risks, markets remain constructive as earnings expectations continue to improve.
Rising earnings estimates continue to support equities despite geopolitical and macroeconomic uncertainty. With profit growth broadening across S&P 500 industries, resilient corporate earnings underpin our constructive outlook for the stock market.
