Global Research Unlocked

Construction spending, excluding housing, is running at a rate of about $1-$1.2 billion annually, near record levels. Much of this spend is driven by recently passed legislative acts, according to Mike Feniger. But reshoring and AI are also having significant positive impact and the annualized capex for big tech has increased from $138 billion to $229 billion in just a year. Still, despite the headline strength, there are areas of construction which are weak, including warehouses, retail shopping centers and private office. The number of mega projects is slowing. Rate cuts and election certainty could be a catalyst for some of these lagging areas. Typically, housing benefits from rate cuts first and commercial construction sees a boost 1-2 years later but a lack of overcapacity in commercial construction could mean that there's less of a lag this time. Mike believes that large equipment rental companies are likely to benefit from this improvement, a view he discusses within.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

Alkesh Shah views Generative AI (GenAI) as the beginning of the third major tech cycle of the past 50 years. Over the past 10 years, development of more powerful chips and a new neural network architecture has raised the upper bounds of storage and computation exponentially, consequently reducing the time and cost to train increasingly large models powering apps like ChatGPT. Alkesh expects GenAI to catalyze a revolution in corporate efficiency and productivity that will occur far more rapidly than past disruptive technologies, which investors anticipate. Alkesh surveyed 157 equity analysts and macro strategists on AI's financial and economic disruption. Survey responses indicate that enterprise AI implementation could boost S&P operating margins by 200bps over the next five years. AI beneficiaries will likely expand from Semis and Cloud Service Providers in the first wave; Tech Hardware, Software and Capital Goods in the second wave; and ultimately touch every sector globally. 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

Discretionary services grew unusually quickly as the economy reopened and savings buffers were high. In 2023, spending received another boost in the form of the Social Security cost of living adjustment, which contributed to rapid 4% GDP growth in the second half of the year. But now, things are slowing to a more normal, trend-like pace of 2%. And there's evidence to suggest that after outsized strength, spend on travel and other services is easing too. One of the positives that comes with this change is that it better balances supply and demand and slowing inflation can help boost real incomes. Another potential positive is that the Fed is close to cutting rates, and while it may take some time for that to help housing markets, Aditya sees benefits for other parts of the economy and for certain consumer segments. Labor markets are key to the outlook, but the recent loosening in these markets has more to do with slower hiring than with layoffs.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

In the US, natural gas has struggled for nearly two years to cope with a storage surplus. Meanwhile, solar power generation has jumped to new highs. These are among the reasons that natural gas prices have languished despite growth in US electricity demand. And growth in solar capacity has weakened the formerly positive relationship between summer temps and gas prices. Francisco Blanch believes US power demand growth should continue into 2030, driven by data centers, electric vehicles, the transition to renewable energy, manufacturing and other areas. But while power demand growth should remain compelling, supply dynamics mean that the case for power and commodity price gains is less clear. Additionally, US election outcomes could impact much of the aforementioned. Meanwhile, Europe has seen power demand contract as industrial usage has declined while the Euro area also witnesses growth in solar and wind generation. 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

The number of people traveling by air in the US continues to make records, but some airlines have posted disappointing results. That's because pricing has been weak as airline capacity has grown faster than demand. Andrew Didora does expect that airline capacity growth will slow after the summer, easing these pressures. But while demand for airline seats continues to make new highs, there are a number of areas that are undergoing normalization, especially very high-priced and very low-priced hotels as well as certain geographies including coastal Florida and pockets of California. Pricing for mid-priced hotels remains fairly strong, though. And demand for Las Vegas hotels and for cruises has remained resilient, likely because both offer compelling value for the consumer. With Vegas, entertainment options continue to broaden just as other cities in the West have faced various challenges. We'll discuss these post-COVID realities for travel and also address implications of rate cuts.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

Slam dunk for streaming media in acquiring NBA rights

Earlier this month, Head of US Media and Entertainment Research Jessica Reif Ehrlich hosted her annual Media in Montauk conference. As is typical, discussions at the conference were most focused on long-term trends and strategy. Women's sports got a lot of focus, especially as the WNBA has seen rising ratings and interest. Year-round offerings are particularly important for streaming networks looking to combat churn and the scheduling of the WNBA helps, given that the season starts when the NBA is coming to an end. Jessica believes cable is becoming less important to media companies as streaming becomes more critical. The oldest form of video, broadcast, remains key because of its wide reach. Jessica suggests box office receipts should pick up in the back half of '24 and normalize by '25 as the impact of strikes wanes. There are mixed signals in travel and entertainment demand, with small cracks in concert demand but there's a new park scheduled to open next year in Orlando and that should drive traffic. Targeted ads on streaming services remain a big opportunity.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

The labor market has remained robust, adding an average of about 250k jobs monthly since the start of the year. But services jobs account for the bulk of the recent growth and at this point, demand in many parts of the service economy have fully recovered. Additionally, structural changes and shifts toward automation accelerated amidst the difficult hiring backdrop. Michael Gapen addresses questions about how much growth is left in services jobs, he explains what could account for the somewhat different messages being sent by the two government employment surveys and addresses the fading boost from fiscal policy. The US Economics team believes that job gains will slow but they're not expecting a sharp decline, partly because certain job categories like healthcare still have room to add employees.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

Food companies are seeing negative volumes, both in their grocery businesses and their food service businesses. The volume picture looks a bit better for the largest restaurants but it's also sluggish. Consumers seem to be economizing more than they were a year or two ago, one way is by eating more leftovers, or eating breakfast at home, and that poses some important questions for these industries as they seek to improve volume growth. But just as higher prices have pushed consumers into different foods and restaurant types, more promotional activity may help to bring them back. There's data to suggest that some increase in promotional activity is underway or may be soon. We'll discuss what we've found and what a pickup in discounting may mean for the companies engaging in it.

The Japanese Yen hasn't been at these levels vs the US dollar since the late 1980s. There are two key drivers of this Yen weakness. One is the interest rate spread. The second, and probably more important longer term, is structural outflows from Japan and the biggest component of this is outward FDI (foreign direct investment) activity by Japanese corporates. The weak yen has mixed effects, boosting export competitiveness and helping tourism revenue but the softer currency also increases Japan's import bill at a time when Japan has become more reliant on them. And over time, export volumes have become less sensitive to the weaker yen, resulting in diminished benefits for the economy, especially in the short term. Still, Izumi Devalier does expect improvement in the Japanese economy in 2H24 as wage increases hit. And if the Fed cuts in December, Yen weakness should be largely contained. A further delay in Fed cuts would add additional risk.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserved.

Entertainment and theme park spending growth has been weaker as demand normalizes from the post-reopening surge. But despite difficult comps, domestic attendance for key parks is flat to up with small and new attractions as a key driver. Indeed, we will get an important major new attraction in Orlando next year. In streaming, viewers can expect to see more personalized ads and ads that allow for more direct purchasing. Combined with election spend, there's a good backdrop for ad spend in the second half of the year. Bundled content is back, in streaming form, and what's interesting is that these bundles are often combining content that's not related-like a slimmed down cable TV package of old. And while overspending on content remains a risk, some secondary sports deals are coming in below expectations and premier sports can drive viewership and advertising for other content areas. The opportunity in media remains significant and below expectations while premier sports can drive meaningful viewership.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2024 Bank of America Corporation. All rights reserve