Seismic shifts in the technology and health-care sectors
highlight why executives are divided or undecided about taking financial and
strategic risks. At the same time, the number of geopolitical tinderboxes has
multiplied, raising the stakes for multinationals.
Overall, financial performance between April and June was
solid. Companies in the S&P 500 are expected to post earnings growth of
7.6% over year-ago levels and a revenue bump of 4.4%, based on projections from
FactSet. More than 90% of the companies have already reported.
However, recent news that Microsoft Corp. and Cisco
Systems Inc. will fire up to a combined 24,000 employees means
tech-sector layoffs this quarter will likely top last quarter’s 25,000, which
was up about 20% from the second quarter last year.
The tech industry is expected to show earnings growth of
9.2% in the second quarter, compared with the year-ago period, and revenue up
6.6%, according to FactSet. However, 17 tech companies have already warned
investors their profits will be lower than expected for the third quarter, more
than any other sector.
At the opposite end of the spectrum is the health-care
industry. The still-evolving Affordable Care Act, has made many companies hire
thousands and plow millions into their businesses.
The health-care sector is expected to post revenue growth of
12.2%, the highest of any sector, and earnings growth of 15.9%, second only to
the telecommunications industry. Health-care companies increased spending on
buildings and equipment by 15%, the greatest surge of any sector and compared
with a 24% decline in the second quarter last year, according to FactSet.
Companies boosting capital expenditures included Tenet
Healthcare Corp., which nearly doubled its spending to $242 million.
New technologies and legislation, however, can be easier to
react to than rockets, deadly viruses or a coup d’état. Plus, there is the
added risk for multinationals of currency volatility and controls.
In the second quarter, the Russian ruble stabilized against
the U.S. dollar, but that was little comfort for companies affected by U.S. and
European economic sanctions over the conflict with Ukraine. European economic
growth also has slowed. Italy is in another recession and France has flatlined.
Currency controls and economic turmoil in Venezuela
continued to weigh on companies like Ford
Motor Co. and Stanley Black & Decker Inc.
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