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Rocky start to 2016 shakes CFOs' outlook

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One potential bright spot in CFO sentiment is that more surveyed CFOs this quarter believe US equity markets are undervalued than overvalued. Just 30% of CFOs surveyed say US markets are overvalued, a sharp decline from 56% last quarter (note that the S&P 500 index averaged 1,865 while the survey was open, about 8% below the average level during the Q4 2015 survey, but has since rebounded).

Top risks cited by CFOs show very strong concerns about the interplay of economic volatility, financial markets and consumer confidence. The top two risks cited overall were external: global economic performance (growth, recession and volatility), followed by oil/commodity prices. There was a three-way tie for third place between two additional external risks — capital market risks (liquidity and stability) and the possibility of new/burdensome regulations. The dominant internal risk related to the talent category: growing concerns about retaining key employees. 

Perhaps signaling a growing orientation toward conservatism, 65% of CFOs cited a bias toward focus on current markets over new ones, a new survey high and an increase from 61% last quarter. Additionally, while CFOs indicated plans to impact their companies in a variety of areas in 2016, a pervasive and strong theme emerged around helping their companies to stay focused and perform well in a tough, shifting business environment.  

Additional findings from the survey included:

  • Low oil prices paint a mixed picture. Nearly 75% of CFOs said low oil prices are impacting demand and/or profitability, with 59% citing positive impacts, just over half citing negative impacts. Only 18% of CFOs said low oil prices are a sign that a US recession is likely in the next year.
  • Almost half of CFOs said their companies are politically active; level and scope of activity is industry dependent. Sixty percent of politically-active companies cited use of a single contribution method (e.g., donating to PACs, candidates and causes). Overall, companies appear more focused on causes than on candidates. Energy/resources CFOs indicated the highest and broadest-based political activity.
  • Use of relatively aggressive derisking tactics related to retirement plan obligations has increased over time. Sixty-three percent of those who have or have had pension plans have utilized at least one aggressive derisking tactic, and this quarter's survey found another rise in the use of voluntary lump-sum payouts, retiree medical buy-outs and plan terminations.

 

 

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