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
Higher inflation has been a dominant theme of the current decade. In addition to price shocks, it is being shaped by secular investment trends in infrastructure, defense spending, onshoring and the ongoing AI buildout. These structural changes reinforce the case for looking beyond traditional 60/40 portfolios to include real assets as a source of diversification and return potential in portfolios.
Inflation appears to have transitioned from its pre-Covid average of 2% to a stickier point closer to 3%, and we do not expect a near-term return to prior levels. In this environment, we believe real assets, such as commodities, infrastructure and REITs, can provide inflation protection, diversification and return potential.
As the S&P 500 approaches all-time highs, there are renewed concerns among investors about elevated valuations. However, historically strong profitability and expected earnings growth appear to support current pricing. In addition, the current S&P 500 price-to-earnings (P/E) ratio is roughly equal to the average since Covid. As a result, we do not view U.S. equities as being in bubble territory and we remain constructive on the asset class.
Stocks, as measured by the S&P 500, are up over 13% through early August. The solid gains have been fueled by a resilient economy, steady consumer spending, optimism around artificial intelligence and better-than-expected earnings growth. Still, some investors worry the advance may be too concentrated in technology and that AI-capex monetization may fall short of expectations. A closer look suggests that it is not just tech moving the market higher.
