A powerful recovery

The recent second-quarter US earnings season highlighted how robust and broad-based its economic recovery has been, with healthy wage growth and ramping industrial production. At present, it seems there is little doubt that the US is leading the global recovery, and while the Delta variant of COVID-19 may cause some bumpiness and air-pockets in the second half of 2021, it is unlikely to derail the long-term recovery.

Instead of focusing on all the top-down, macro-driven commentary, we find that a boots-on-the-ground view from the businesses actually at the coalface provides a much clearer view of what is happening. Below are some quotes from big US corporates we follow about what they are seeing.

Robust Demand

“I haven't seen it be any better since I've been at Honeywell, and that's 13 years. So, I think I couldn't be more excited about what the future holds.” – Darius Adamczyk, CEO of bellwether industrial conglomerate Honeywell

“We're going to provide a home for everybody walking in. We just need to keep them patient and understand their frustration. But that's just, again, it's a market I've never seen. Demand is just unbelievable today.” David Auld, CEO of US homebuilder D.R. Horton

“I think the good news which is far more point we have a healthy underlying economy. The data is uncertain but the strength of the economy, in my view, is not.” Jamie Dimon, CEO of JP Morgan

“[…] ecommerce has continued to grow. […] It’s strong, I’m not sure if I see any change in that. If anything, continued growth, especially with the changes that we've had with COVID and how people continue to stay at home and work from home and those kind of things. […] Definitely strong, getting stronger.” Greg Gantt, CEO of Old Dominion Freight Lines

Inflation

Prices are rising across the board and many businesses had to discuss how they were dealing with higher input and wage costs. We see wage increases as permanent, whilst the massive supply chain bottlenecks causing industry-specific shortages will likely be worked through over the next 12 months.

“[…] wage pressure has become evident. It’s a very competitive labour market out there, and [it’s] certainly the biggest contributor to inflationary pressures that we're seeing in business." Brian Olsavsky, CFO of Amazon.com

“Input costs have risen sharply. Current spot prices for materials such as resins, chemicals and other ingredients are up anywhere from 30% to 200% versus April 2020.” Andre Schulten, CFO of Procter & Gamble

Importantly, language from the Fed has begun to shift towards being more hawkish, with some commentary around tapering starting much sooner than the market had anticipated.

The Shape of the US Recovery

In our view, one thing the COVID-induced recession has brought to light for many US businesses is the chronic underinvestment in technology and infrastructure post GFC. We think the combination of businesses that are flush with excess capital (raised at the height of uncertainty in 2020) and the need to remain competitive (especially as we see the East v. West divide widen) will underpin a new investment cycle in the US, which could last for years. 

Source: AIM

We discuss all of this in detail in the recent AIM 2Q Trends Webinar and then unpack some of the other big issues facing markets right now, such as China tech, positioning for the Delta variant, and our views on the Aussie Dollar. Scroll down for the time-stamped summary. 

Summary
3:06 What have our global companies told us about the state of the economic recovery?
8:10 Unpacking Amazon & e-commerce trends
13:21 The two things to keep an eye on with inflation & why we aren't too worried
14:57 Positioning for a three-phased US recovery
17:35 Portfolio update & how we think about China exposure
19:55 The post-COVID trends we are excited about
24:29 Prepare, don't predict
28:55 Conclusion & outlook
Q&A
31:45 Are we due for a correction?
36:31 What is your view on the China tech crackdown?
42:55 What is the current macro view?
45:17 What are the global mid-cap stocks you are most excited about?

Stay safe and well!