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The US Federal Reserve is gearing up for tapering. This is clear from both the minutes of the July FOMC meeting, released yesterday, and the slew of Fed speakers that have lined up behind the idea in recent weeks. Specifically, the July FOMC minutes stated…
The labor market is the single most important factor for the Fed’s policy normalization timeline. Results from the New York Fed’s supplemental survey in the August Business Leaders and Empire Manufacturing surveys are instructive. Of the roughly 80% of…
BCA Research’s US Bond Strategists have been highlighting that employment is the single most important indicator when it comes to bond yields. They expect an acceleration in the labor market recovery to spur the next leg up in bond yields and forecast the…
US data releases sent a mixed signal on Tuesday. While retail sales disappointed (see The Numbers), factory output surprised to the upside, rising by the most in four months. Notably, capacity utilization climbed 0.7 percentage points to 76.1%, just shy of…
Headline Advance Retail Sales for July, released before Tuesday’s open, contracted by 1.1% from June, falling well short of the consensus expectation of a 0.3% decline. The release contributed to a risk-off day in financial markets in which the S&P 500…
Overweight Today we are upgrading the Semiconductor industry group to an overweight. Semis received a lot of bad press this year as chip shortages became a major production bottleneck for a range of industries from autos to gaming computers. Semiconductor manufacturers have reduced their capacity during the pandemic and were struggling to ramp up production to meet pent up demand. This industry is highly cyclical and is a high beta play on the global recovery. The chart on the right illustrates that historically, US Semi earnings have been joined at the hip with the global sales and inventory cycles. Global inventories are at all time lows, and a new restocking cycle is in its infancy. A shortage of chips translates into higher prices and strong earnings growth, which is likely to continue far into the future. Street consensus expects 18% EPS growth over the next 12 months. Further, semis stocks have been in a consolidation mode for the first half of 2021 and have accumulated enough dry powder for a new leg higher. This industry group is trading with a 7% discount to the S&P 500 forward earnings multiple (19.8x vs 21.3x) Importantly, as our BCA colleague, Arthur Budaghyan, observed, semiconductor chip manufacturing is becoming a strategic asset, especially in a standoff between China and the US, and the country that controls the production of semis controls the production of most tech goods. This view highlight structural importance of this investment theme. Bottom Line: We are upgrading the S&P Semiconductors & Semiconductor equipment index to overweight from neutral allocation.
Our Global Investment strategists recently highlighted that the possibility of a “goods recession” is among the key risks they are monitoring for signs to reduce equity exposure. The New York Fed’s Empire Manufacturing Survey sent a slight warning on Monday.…
Two key motives explain the US’s withdrawal from Afghanistan. First, the US public has grown war weary. According to opinion polls, most Americans do not view the war in Afghanistan – or other wars in the Middle East – as worth fighting for. Therefore, the…
BCA Research’s US Equity Strategy service concludes that we are unlikely to see significant multiple compression without a market correction. Return decomposition demonstrates that in 2020, the S&P 500 return was 26%, with 43% contributed by the…