US equities: three themes to watch in a discriminating year
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US equities: three themes to watch in a discriminating year

2022 will be a new year in more ways than one. After more than a decade of monetary stimulus, the US Federal Reserve has signaled that it will raise interest rates and reduce support for the economy and asset prices. As a result, expanding valuation multiples will no longer push stocks higher; instead stocks must rely on actual earnings growth.
In a market where there will be a wide disparity between winning and losing stocks, only intensive research will uncover the likely winners. That means engaging with company managements to understand their competitive positions and how they will be affected by 2022’s major economic themes.
We think there are three themes that matter at the beginning of what is likely to be a bumpy year. As we move towards recovery from the Covid-19 pandemic, even though this will not be a linear path, understanding how individual companies and their business models will fare given the prevailing macro environment and these major themes will give investors an edge.

Theme 1: Products versus services

Firstly, there is the question of how consumers will expend pent-up demand. Before the pandemic, consumers preferred “experiences”. As a result services such as travel, hotels, restaurants, flights and cruises were in hot demand. But social distancing turned that on its head, with the result that US consumer spending on goods such as furnishings and clothing is up 21% since the end of 2019, yet spending on services languishes at pre-pandemic levels.1
As 2022 progresses, the pandemic’s likely retreat will favour services once more. But to what extent? And will the Omicron and Delta variants slow the reversal?

Figure 1: Goods demand outstrips services

Real Personal Consumption Expenditures
Q4 2019
Q3 2021
Delta (%)
Motor vehicles and parts
$537,490
$576,318
7
Furnishings and durable household equipment
$421,774
$502,640
19
Recreational goods and vehicles
$596,206
$801,765
34
Other durable goods
$258,851
$336,883
30
Durable goods (total)
$1,794,660
$2,159,478
20
Clothing and footwear
$415,107
$505,396
22
Food and beverages
$994,714
$1,112,602
12
Gasoline and other energy goods
$442,967
$438,058
-1
Nondurable goods (total)
$3,010,062
$3,398,820
13
Goods (total)
$4,786,890
$5,524,119
15
Housing and utilities
$2,111,835
$2,150,041
2
Health care
$2,263,304
$2,222,833
-2
Transportation services
$461,905
$396,702
-14
Recreation services
$510,164
$418,320
-18
Food services and accommodation
$854,637
$850,816
0
Financial services and insurance
$850,903
$877,907
3
Other services
$1,132,570
$1,114,336
-2
Services
$8,505,897
$8,365,837
-2
Personal consumption expenditures (PCEs)
$13,248,981
$13,723,725
4

Source: Bureau of Economic Analysis, https://www.bea.gov/data/income-saving/personal-income. 

Investors are quickly shifting their approach from primarily excluding assets that are not green to actively investing in businesses that will have a long-term positive impact on the environment, for instance through better use of plastics or developing green hydrogen as a source of power. For investors such as insurers, ESG (environmental, social and governance) is becoming a portfolio’s fourth pillar alongside risk, return and capital. This influences how you select the building blocks of portfolios, and we have been doing a lot of research into what we call “green capital market assumptions”.

Theme 2: Continuing shortages

A related theme is the shortages beleaguering the economy and stoking inflation. They predominantly affect three areas: retail inventories, the supply chain and labour. To start with, retail inventories are struggling to keep up with consumer demand for goods – such lean inventory is restraining sales. Supply chains, too, are having a hard time keeping up, gridlocked by factors such as a resurgence in demand and bad forecasting. We think that supply chain shortages will ease in early 2022 and stabilise over the course of the year, probably returning to normal by the beginning of 2023. In terms of labour, there are still four million missing workers due to a combination of Covid-19 deaths, early retirement, caregivers not returning to work and lower levels of immigration.
Perhaps counterintuitively, shortages benefit some companies because they bolster pricing. Our analysts judge that businesses in areas such as air freight and agriculture have most to gain from shortages, while automobile companies, miners and even banks have much to lose.

Figure 2: Who will be the winners and losers from 2022’s shortages?

Sector
Vertical
Sales
Margins/ EPS
Combined
Benefit
Industrials
Air freight and logistics
2
2
4
Materials
Agriculture
2
2
4
Consumer discretionary
Household durables
1
1
2
Consumer discretionary
Internet and direct marketing retail
1
1
2
Consumer discretionary
Multiline retail
1
1
2
Consumer discretionary
Speciality retail
1
1
2
Consumer discretionary
Textiles, apparel and luxury goods
1
1
2
Energy
Energy equipment and services
1
1
2
Energy
Oil, gas and consumable fuels
1
1
2
Materials
Commodity chemicals
1
1
2
Hurt
Industrials
Trading companies and distributors
0
-1
-1
Information technology
Communications equipment
-1
0
-1
Information technology
Electronic equipment, instruments and components
-1
0
-1
Information technology
Technology hardware, storage and peripherals
-1
0
-1
Financials
Banks
-1
-1
-2
Health care
Life sciences tools and services
-1
-1
-2
Materials
Metals and mining
-1
-1
-2
Consumer discretionary
Automobiles
-2
-1
-3
Consumer discretionary
Auto components
-2
-2
-4

Source: Columbia Threadneedle Investments internal scoring survey of covered US equities, 10 Jamuary 2021.

Theme 3: ESG’s rise

A longer-term theme set to accelerate in 2022 is consumer concern about climate change. North American companies are already starting to respond by changing their behaviour; expect the pace to pick up next year. For instance, Union Pacific, North America’s biggest railroad company, published its first climate action plan at the end of 20212 detailing steps to reduce its environmental impact, with an eye to achieving net-zero emissions by 2050. Others will follow.
We are engaging with companies in a consultative manner about environmental, social and governance (ESG) issues, seeking to understand what they are doing, as well as how this may impact their earnings over time.

Conclusion: Rewarding research intensity

2022 will be a year when the Federal Reserve tightens monetary stimulus for the first time since the 2009 global financial crisis. In many ways, this will mark a watershed. Tighter monetary conditions will make equity markets more discriminating as higher earnings become the main driver of stock price gains.
In such a changed environment, progress for equities will be bumpy and uneven. Intensive research will be needed to find the stocks able to continue growing their earnings.
18 Januar 2022
Nicolas Janvier
Nicholas Janvier
Head of US Equities, EMOA
Benedikt Blomberg
Benedikt Blomberg
Portfolio Manager
Paul DiGiacomo
Paul DiGiacomo
Head of Equity Research
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US equities: three themes to watch in a discriminating year

1 Bureau of Economic Analysis, bea.gov/data/consumer-spending, 29/12/2021.
2 https://www.up.com/aboutup/esg/climate-action-plan/index.htm

Important Information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document.

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This document has not been reviewed by the Monetary Authority of Singapore.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the ce (Chapter 622), No. 1173058.

In the UK: Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Sociétés (Luxembourg), Registered No. B 110242 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In the Middle East: this document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). This document is intended to provide distributors with information about Group products and services and is not for further distribution. The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparty and no other Person should act upon it.

In Switzerland: Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com

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Important Information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document.

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This document has not been reviewed by the Monetary Authority of Singapore.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the ce (Chapter 622), No. 1173058.

In the UK: Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Sociétés (Luxembourg), Registered No. B 110242 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In the Middle East: this document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). This document is intended to provide distributors with information about Group products and services and is not for further distribution. The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparty and no other Person should act upon it.

In Switzerland: Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com

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