- As we enter the recovery phase, the US equity team is working closely with our Fundamental Research team to analyse two major themes that will drive our sector positioning and stock picks over the coming months.
- The first is consumer spending. Household balance sheets are in much better shape than they have been emerging from previous recessions, but the pattern of consumer spending that we see in 2021 will be different to the pre-pandemic trend. The “experience economy”, which emerged strongly in the decade from 2010, will exhibit the strongest growth. This means tourism, out-of-home entertainment and leisure spending will benefit. But a significant proportion of business travel – perhaps as much as 50% – will not return.
- Our second theme is how changes in corporate costs will feed into increased operational leverage and improved profitability as revenues rebound. We will be looking to identify those that have succeeded in permanently reducing their operating costs during the pandemic.
- A Joe Biden presidency, but with a divided government, could be positive for utilities (where the push towards generating cleaner power is likely to continue and should benefit regulated companies), real estate, consumer staples and materials. But the outlook is arguably weaker for healthcare, energy and financials, where the likelihood of higher corporate taxes is now lower, which would be a positive for the sector, but the odds of new, more stringent regulatory initiatives may act as a drag.
„The rebound will look different to previous phases when economies were emerging from recession, because this time household balance sheets are in much better shape“
The US consumer
One to watch: operational leverage
Our research does indicate that there will be clear sector winners and losers in a Biden presidency. For example, among the winners will likely be utilities, where the push towards generating cleaner power is likely to continue and
„The incoming US administration will affect the business environment, although we expect a divided Congress to limit its scope for action“