The onset of the pandemic marked a global crisis that plunged countries into an economic crisis. Businesses were forced to close up shop and many industries suffered. Although many have been able to bounce back, many industrial giants have been able to carry on with business as usual. Corporations like Apple and Google among many others have continued to add to their revenue, showing signs that they have grown anxious about the effects of the Delta variant of COVID-19 on the global economy.
According to data from S&P Global Ratings, the world’s largest nonfinancial companies have recorded $6.85 trillion on their balance sheets at the end of the second quarter. The numbers indicate that the second-quarter totals have increased from the end of 2020. Teach giants like Apple, Microsoft, and Google owner Alphabet comprise $460 billion in cash with Amazon holding nearly $90 billion and Facebook with $64 billion.
However, technology titans are not alone in stockpiling cash. Warren Buffett’s Berkshire Hathaway, a multinational conglomerate holding company, has a mammoth of a mountain of cash that has been growing even bigger as the company struggles to find more investing opportunities. As of June, they had $144.1 billion on its balance sheets, showing improvements from the $138.3 billion six months earlier.
With the current economic status, companies have taken advantage of low interest rates to borrow more money, helping them boost cash and debt levels for blue chip firms. With many companies building their cash reserves, it’s easy to conclude that they have grown anxious about the state of the markets and economy. With their hoarding of money, people have begun to ask if it is time for businesses to start spending again.
“We’d thought earlier this year that by this time, companies would be starting to draw down cash,” shared the head of equity strategy at Wells Fargo, Christopher Harvey, “But companies are spending on buybacks, dividends, and mergers. The capital markets are wide open. The cost of funding is incredibly cheap so companies are issuing debt, and cash is still accumulating.”
Another report by S&P revealed that companies outside of the struggling energy and materials sector will spend $2.8 trillion on capital expenditures this year, giving them an all-time high increase of 15% with tech firms and utilities in the lead. However, the Federal Reserve is expected to start cutting back its bond purchase program in the latter months of the year, potentially raising short-term interest rates in 2022, giving people the sense that the companies may stop using cash to borrow even more money.
With a higher-rate environment, debt would become more expensive, and companies may start putting their cash to work in other ways like increased investments and potentially give pay raises for employees despite the growing concern for the Delta variant. Richard Lane, senior vice president at Moody’s shares that company had built up an “unusual” buttress of cash due to the concerns about liquidity during the worst of the COVID crisis, but he believes that it is time to unwind some of the cash instead of parking it on the balance sheet.
“What happened during the pandemic is that large investment-grade companies were aggressive in refinancing debts or raising new money,” he said, “As we go through this year, I would expect that cash levels come down a bit.”