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Why CEOs’ Weak Outlook May Be a Good Thing

Althea Chang
Big Data Download

CEOs aren't expecting much of a rise in consumer demand this year, according to a recent report, but that could actually be good news for investors.

CEO sentiment has been flat for the last nine months, according to the YPO Global Pulse Report, released quarterly by the Young Presidents Organization, a group of executives under 45. The organization surveyed 1,700 executives across 85 countries for its latest report.

"CEOs remain confident that they can generate profits in their businesses, but they remain very reticent to hire aggressively or to add in any way meaningfully to their businesses through capital spending," said Alan Zafran, chairman of the YPO Personal Investing Network and Managing Director of Luminous Capital Management.

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For investors, lean companies with positive cash flow and high dividend yields are a good sign, Zafran said.

YPO Confidence Index

In April, the YPO Consumer Confidence Index ticked slightly downward to 60.4 compared with 61.3 in January. A couple sectors are exceptions to this trend according to the survey, however: housing and autos.

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"There seems to be some pickup in those sectors, but it's being offset largely by manufacturing CEOs in other industries who have yet to see any material impact or pickup in underlying customer demand for their products," Zafran said.

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