Stocks Are Held Hostage as S&P 500 CEOs Plan to Cut Spending

S&P Index 500 companies plan to cut expenditures by 1.3% in 2013 after three years of growth.

The U.S. budget debate is holding stocks hostage, as chief executive officers prepare to cut capital spending for the first time since 2009 should President Barack Obama and Congress fail to reach an accord.

Expenditures by Standard & Poor’s 500 Index companies will fall 1.3 percent in 2013 after three years of growth, according to more than 10,000 analyst estimates compiled by Bloomberg. Companies from Verizon Communications Inc. to Rockwell Collins Inc. said they don’t plan to boost investment amid concern political leaders will fail to agree on a plan that would avert more than $600 billion of spending cuts and tax increases that threaten to throw the U.S. into another recession.

A Bloomberg National Poll showed a majority of Americans back Obama’s demand that tax-rate increases for the highest earners be a precondition for a deal that cuts U.S. entitlement programs. The Congressional Budget Office has warned that if talks fail, the economy may slip into a recession in 2013.

Reaching Compromise

Chief Financial Officer Stacy J. Smith said in an Oct. 16 call with analysts that the Santa Clara, California-based company will reduce investment in the fourth quarter. Analysts estimate an 11 percent cut next year to $10 billion after a 7.6 percent rise in 2012. The stock has tumbled 15 percent this year.

Capital Budgets

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