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Positive Signals from Capex?

September 03, 2025

Time to Read: 2 minutes

The One Big Beautiful Bill Act’s provision regarding the full expensing of capital expenditures is already having an impact on companies’ investment plans. We believe this a positive signal for economic growth.

This past Independence Day, President Trump signed the long-awaited One Big Beautiful Bill Act into law. Along with the tax and spending cuts included in the Act are notable pro-growth policies, such as the full expensing of capital expenditures (capex) for businesses. Additionally, under the Act, companies can write off qualifying research and development expenditures in the year they are incurred.

In anticipation of these provisions, manufacturers have begun to increase their capex plans, which we view as a positive signal for future economic growth. Continued reshoring and the growing need for data center power are driving increased capex in the Industrials, Energy and Materials sectors. Additionally, the new tax incentives and proliferation of artificial intelligence adoption are leading to new investment in semiconductors and supply chains.

We expect the Act’s business-friendly clauses to stimulate investment and boost productivity. Historically, rising capex has aligned with stronger growth.

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Cuts Are Coming

Last Friday, Federal Reserve Chair Jerome Powell described a shift in the balance of employment and inflation risks, and the market rallied on the news. For us, nothing has changed. We have been closely monitoring the labor market and indicators of inflation, and we continue to expect two rate cuts this year.

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Higher Margins Drive Robust Earnings

Second quarter earnings season is winding down. Nearly all companies have reported, and the majority beat expectations as margin estimates continue to rise.

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Earnings Season Wrapping Up on a High Note

Second quarter earnings season is winding down, but earnings are up, and better than expected. Despite some potentially concerning signals from the real economy, including muted job gains, and possible seasonal volatility, we remain constructive on equities. A positive second quarter earnings season strengthens our conviction.

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Mixed Job Market

Last week the market received mixed messages about the condition of the labor market. Nonfarm payrolls came in lower than expected, and the previous two months of data were revised sharply lower. Yet initial jobless claims were also lower, and the unemployment rate remains in range. We believe the U.S. economy can still deliver modest growth this year.

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