This week, Zacks Equity Strategist Mayur Thaker, CFA, discusses:

• Why the direction and amount of corporate capital expenditures (capex) can be a useful signal on the direction of the economy. Capex is defined as the investment in a company’s long-term assets—factories, equipment, machinery, office space, Al datacenters.

• To determine if capex is bullish, one can’t simply look at it in nominal terms. Instead, Mayur says we must look at net capital expenditures—the nominal figure minus depreciation. If capex exceeds depreciation, that indicates growth mode, and if it falls below, that signals conservation mode.

• Using Advisor Tools charting to plot capex for the S&P 500, Mayur shows that businesses have been in conservation mode for a long period, from 2016 – 2024. However, the direction of capex has been trending up for the last five years, and recently crossed into growth mode. How does the capex indicator compare to other economic indicators, and does Mayur foresee a bull or bear market ahead? Watch this week’s video to get the answers—and learn how capex offers a powerful method to assess the business cycle and the direction of the U.S. economy.

The views of Mayur Thaker, CFA are not necessarily the views of Zacks Investment Research.

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