Activist investors are hurting the economy by forcing companies to return capital to shareholders rather than undertake new projects, contends Larry McDonald, Societe General's head of U.S. strategy.
Over the past 18 months, corporate capital expenditures have fallen while buybacks have risen, which "just tells me that we're in a market where activists are very bold. They are exerting their power and in many cases, more influence than in recent years," McDonald said.
In the most famous recent example of the trend, Carl Icahn's calls for increased buybacks at Apple have been largely met by the company (whether as a direct result of Icahn's influence or not) and in April, Apple increased its two-year capital return program to $200 billion.
The consequent impact on the economy is very real, says McDonald.
"Without capex growing and expanding, you're talking thousands and thousands of jobs that aren't being created because companies are just financial engineering their own balance sheets," he said Wednesday in a "Trading Nation" interview.