Enterprise software stocks crashed on Monday, leading the broad market down, after Europe’s tech pacesetter SAP dropped by 23% after the firm cut its 2020 forecast.

American enterprise software stocks including Oracle and Salesforce.com were among the worst performers in the S&P 100 Index with losses of about 4% each.

Rising Covid-19 infection rates in Europe and the United States prompted the market sell-off, but business software showed the biggest losses.

That’s an ominous sign for Western economies, because enterprise software transmits the productivity gains from next-generation 5G mobile broadband to the rest of the economy. The chart below shows the SAP crash followed by a decline of S&P 500 futures.

Enterprise software includes everything from travel and meeting scheduling to smart cities, robotics and other productivity-enhancing applications.

SAP took down its 2020 revenue guidance only slightly, to US$32.2 billion from an earlier estimate of $32.9 billion, and the ferocity of the selloff in the company’s share price took analysts aback. Investors are treating a crack in the dam as if it were a full-scale flood.

Capital spending is the first thing that most corporations slash after negative economic surprises. The constituents of the S&P 500 are already expected to fall about 15% this year, and by about 10% among members of the EuroStoxx 600, according to Bloomberg consensus estimates. CapEx is expected to grow in China.

China’s CapEx includes an expected $170 billion investment in 5G infrastructure, including six million base stations, more than half of the world’s total 5G investment. US telecom providers, by contrast, will show no rise in capital investment between 2019 and 2020, according to the same Bloomberg consensus.

Those forecasts came out before SAP revised down its outlook. The dire problems of unemployed workers, small businesses and the service sector most impacted by the pandemic have had the undivided attention of policymakers.

The stock market, though, believes that the worst effects of the second wave of the pandemic now underway will be felt in capital expenditure.

5G broadband makes little direct contribution to productivity. But it makes possible a vast array of productivity-enhancing applications, including:

  • Smart cities where artificial intelligence servers direct vehicles to passengers and packages;
  • Self-programming industrial robots;
  • Remote medical diagnosis and even surgery;
  • Epidemic control;
  • Improved credit scoring for consumers and small businesses.

Although a great deal of enterprise software is swallowed up in ordinary administrative functions, virtually all the productivity-enhancing benefits of the new mobile broadband will be realized through enterprise software delivered through cloud computing.

As I reported on October 16, Huawei’s cloud computing division is now a major business vertical on par with its handset and telecommunications businesses, and the company is moving into other software business, for example cars. Alibaba and Tencent also are major factors in China’s cloud computing market.

One day’s panic doesn’t make a trend, to be sure, but the implication of Monday’s market action is that the West may fail to launch timely the Fourth Industrial Revolution of fast broadband, artificial intelligence and big data. China is the only major economy that will expand in 2020 while all the big Western economies shrink.

If the West responds by postponing the investments that will drive productivity growth during the next two decades, it will miss the chance to pay its way out of the huge budget deficits that it has incurred to mitigate the economic effects of the pandemic.