Weekly Market Update

This week was hallmarked by a deluge of macroeconomic releases as well as the unofficial start to the first quarter earnings season, but stocks grinded higher as inflation and consumption data continued to moderate and early corporate earnings results from the money center banks such as Wells Fargo, JPMorgan, and Citibank markedly exceeded expectations.  Ultimately inflation and rate hike expectations around the Federal Reserve’s next meeting on May 2-3 continue to drive investor sentiment, but investors will be closely watching the S&P 500 earnings season as it heats up next week, as once again bears are forecasting a sharp deterioration in corporate profits, while bulls anticipate a shallow first half earnings contraction followed by an earnings per share (EPS) rebound into the second half of the year.

Made in the USA Resurgence?

Deglobalization and reshoring became common business topics following the US-Chinese trade wars in 2018 and especially after the pandemic created huge supply chain disruptions, and recent data from the Census Bureau indicates that businesses are increasingly following through with plans to bring manufacturing back to the US.  Construction spending on US factories reached a whopping $108 billion in 2022 (see WSJ chart below), the highest annual total ever and above investments in building schools, healthcare facilities or office buildings.  Beyond companies trying to create more resilient and flexible supply chains, significant government incentives from legislation such as the CHIPS Act and Inflation Reduction Act (IRA) have spurred investment in expanding domestic capacity to manufacture high-tech items such as semiconductors and electric-vehicle batteries/components.  As a result, the manufacturing sector has quietly added roughly 800,000 jobs over the last two years (per the Bureau of Labor Statistics) and supply chain woes are now shifting into labor shortages, as the National Association of Manufacturers estimates another 800,000 workers are needed to support the boom in US factories.  Ultimately, while there might be growing pains as it relates to finding and training workers, we applaud US businesses for identifying bottlenecks, creating jobs, and diversifying their supply chains.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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