Global Research Unlocked

Rate cuts to boost some construction segments with a lag

Construction spend strong on structural tailwinds
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.

The AI evolution could become a revolution

GenAI: Coming Soon to a Sector Near You
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.

Normalizing consumption keeping inflation civil

Labor market remains key to consumption
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.
 

Powerful demand for electricity meets towering supply

A weakening relationship between nat gas and temps
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.
 

Bucket list checked, consumers back to viewing travel as discretionary

Value in Vegas has kept consumer demand resilient
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.