Technology Spending Sustains Citi's `Raging Bull' on U.S. Stocksby
Outlays may rise this year by the most since 2007 as % of GDP
Strategist sees tech investment countering declines in energy
Increased business investment in technology will provide support to the economy and stock market next year, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.
As the chart below shows, third-quarter corporate spending on computers and software equaled 4.2 percent of U.S. gross domestic product, according to data compiled by the Commerce Department. The proportion rose in the first three quarters by 0.2 percentage point, which would be the biggest annual increase since 2007. Levkovich presented a similar chart in a report two days ago.
Technology companies are poised to increase capital spending by 9 percent in 2016, according to Levkovich, based on data compiled by Citigroup for stocks that its analysts follow. The growth will help offset cuts at energy companies hurt by falling oil and gas prices, the New York-based strategist wrote.
Mobile access, cybersecurity, online retailing and health-care monitoring are among the areas where businesses are likely to spend more, he wrote. He also singled out the Internet of Things, in which consumer products and other items are capable of collecting and exchanging data.
The spending outlook is a reason why a “Raging Bull” scenario for U.S. stocks is still intact, he wrote. Levkovich made that call four years ago, based on the prospect that baby boomers were reaching their peak savings years and would favor stocks.
The Standard & Poor’s 500 Index “could easily top 4,000 in the next 10 years,” Levkovich wrote. His estimate is almost double yesterday’s close of 2,073.07 and exceeds one that Savita Subramanian, chief U.S. equity strategist at Bank of America Corp.’s Merrill Lynch unit, reaffirmed last week. She expects the index to reach 3,500 by 2025.