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Since early last year, companies have piled up record amounts of cash. How they decide to use that cash could be meaningful to the economy and for investors.

Corporate cash balances remain elevated

During the onset of the COVID-19 pandemic, many U.S. corporations sought to hoard cash through a combination of cost cutting, dividend reductions, the suspension of share buyback programs, and debt issuance. Amid such uncertainty, that cash buildup provided a buffer to slowing business activity and uncertainty about the economic fallout from the pandemic.

Since their trough last year, a strong rebound in corporate profits has further supported the unprecedented levels of cash on corporate balance sheets. As illustrated in the chart above, total cash and checking account balances for nonfinancial corporations remain near $2 trillion as of June 30 —a more than 25% increase from pre-pandemic levels and near the peak level late last year.

The constructive economic outlook, as conditions continue to normalize, would suggest that companies are likely to put this excess cash to work in the months ahead. Although wholesale inventories have recovered, retail inventories remain depressed as a result of strong demand growth, persistent supply chain issues, and shortages for certain goods. Companies are likely to spend a portion of their cash balances rebuilding their inventories as supply chain issues are resolved.

Additionally, corporations have already begun to ramp up capital expenditures and will likely continue to do so, as we discuss in our accompanying piece, particularly as they face continued challenges in hiring. As a result, business investment appears poised to pick up steam as a critical source of growth even if consumer demand slows.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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