In the last 18 months, housing demand has significantly outpaced supply, and strong demand is likely to continue with the number of 35 to 44 year olds rising by 5mm over the next 8 years. Meanwhile, housing supply growth has been muted as construction was sluggish for years following the housing crisis. While this has pushed prices much higher, affordability isn't far from historical average and rentals have become more expensive too, such that buying makes more economic sense in many markets. Supply chain issues have made materials more expensive, but an easing of these issues could also help with affordability. And while rates are expected to rise next year, the increase will likely have a minimal impact of on the average mortgage payment and a less accommodative Fed could slow inflation, a positive.

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Much of Wall Street’s focus on electrification has been directed at vehicles, logical given the size of the global auto market, but what about snow blowers, chain saws, light towers and even generators? Gas powered equipment contributes to carbon pollution and generates a significant amount of noise. Many states and municipalities have introduced legislation banning the sale of some new gas powered equipment and in CA a ban is coming. But electrics are increasingly attractive to consumers as well, and penetration rates have room to rise--they’re only around 20% in mowers, for example.  In the commercial equipment rental space, ESG conscious consumers are beginning to demand electric alternatives in their construction projects. US Machinery Analyst Ross Gilardi discusses the electrification of consumer and commercial grade power equipment and impact on the hundred billion+ dollar market.

"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.

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China policy tightening is already impacting economic growth but some of the earnings impact may still lie ahead. BofA Global Research recently held a highly attended two-week China Conference in which investor surveys were conducted on the state of Chinese markets and the economic outlook. A majority of survey participants expect China's GDP growth to slow in 2022, and of course, this can have spillover effects to the rest of the world. When it comes to common prosperity, though, many more investors view it as necessary and as a positive for long term China growth than view it negatively. The property sector is a key driver of wealth inequality and is at risk of continued policy tightening and property appreciation may be capped. Winnie suggests the worst of the policy tightening may be behind us but earnings could still disappoint, helping to keep her neutral

"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.

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The percentage of plastic that actually gets recycled is in the single digits and proper sortation continues to be a challenge, limiting the end uses for recycled plastic. This creates multiple issues, from water pollution to demand for landfill space to carbon emissions. The plastics industry has aggressively gone down the path of finding technologies that ameliorate these issues because shareholders and consumers have demanded it. The focus for the last several years has been mechanical recycling but more sophishisticated and advanced approaches are now in focus including turning plastic back into virgin-grade product. As for chemical production, one of the more promising areas of focus has been the use of renewable feedstock, everything from tree oil to cellulose to cotton t-shirts. This will require time and lots of capital, and while these are still a few years away, Steve Byrne suggests we are edging closer to a more sustainable way to produce plastics.

"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.

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Lorraine Hutchinson's expert conference calls across the supply chain lead her to believe that while bottlenecks for her companies are generally not getting worse, they're also not getting better. That said, there is line of sight to some improvement early next year and Lorraine does not believe shelves will be empty during the holiday season, instead expecting 80-90% of items to be available. Companies with higher prices, stronger brands and less exposure to Southern Vietnam, which tends to do a lot of footwear production, are best postioned to weather these challenges through the holiday season. Looking ahead to 2022 and beyond, Lorraine does think that it'll be hard for companies to remain as disciplined on price as certain retailers seek share gains but it will take time for inventories to normalize, and in the shorter term, retailers will probably find that they have no stock of some items and a lot of stock of others. And while companies may look to diversify their supply chains moving forward as a response to the issues of the past year or so, Lorraine does not anticipate a large push to bring production home to the US, especially at the lower end of the market, as the higher labor costs associated with reshoring are still too great.

"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.

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Though S&P capex spend is rising on a Y/Y basis once again, excluding Internet retail, capex is still 7% below pre-pandemic levels, suggesting plenty of room for improvement, especially in light of record earnings and supply side problems. Reshoring was taking place even pre-COVID, but the pandemic has highlighted weakness in global supply chains, likely accelerating the shift from global to local. Andrew Obin notes technology has been the biggest drag on US manufacturing capex over the past 20 years as tech manufacturing has been sent offshore, but semiconductor reshoring is poised to provide a boost moving forward. Andrew sees industrial automation as the greatest beneficiary of reshoring as companies substitute capital for labor in the face of a less skilled US work force. And Savita Subramanian sees Financials as a beneficiary of a capex cycle as the economy improves and rates rise. Financials are also labor light which helps the sector to better handle higher wages

"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.

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