* S&P 500 firms will increase total cash use by 12% in 2017.
We forecast S&P 500 firms will spend $2.6 trillion next year, allocating 52% to investing for growth (capex, R&D, and M&A) and 48% to returning cash to shareholders (buybacks and dividends). Cash balances currently stand at historical highs, totaling $1.6 trillion (ex-Financials) or 12% of assets compared with a long-term average of 7%.
* Share buybacks will rise by 30% to $780 billion in 2017.
Corporate tax reform will contribute to the sharp rise in share repurchases. We estimate $150 billion or 20% of total buybacks will be driven by repatriated overseas cash. Excluding the repatriation boost, buybacks will rise by 5%. We forecast dividend growth of 6%.
* Capex will rise by 6% to $710 billion as Energy capital spending stabilizes.
Energy accounts for 19% of S&P 500 capex following a 45% plunge in spending since 2014. We forecast 1% growth in Energy capex next year. S&P 500 ex- Energy capex will rise by 7% in 2017. R&D spending will grow by 7% to $290
billion led by Information Technology and Health Care. We expect cash spending on M&A will rise by 5% to $335 billion following a 20% plunge in 2016.