Merrill har en særdeles dyster rapport om USA og Europa. Den globale økonomi er på nedtur. Der vil ske et kraftigt fald i de amerikanske virksomheders indtjening, og Europa er på vej mod recession. Europa befinder sig allerede i stagflation, mener Merrill. Årsagen ligger i krigen i Ukraine med sanktionerne samt den kinesisk lockdown. Men også effekten af den pengepolitiske stramning, som skyldes den lave rente i flere år samt pandemien, spiller ind. ISM-indekset for produktionen er blevet stærkt forværret og ligger nu på grænsen mellem ekspansion og recession. De amerikanske virksomheders salg til Kina og Euroa er faldet, og det fører til en lavere indtjening. Alt i alt skaber det kraftig modvind for den globale vækst og for virksomhedernes indtjening. Over en bred bank forværres indtjeningen – fra stigende omkostningerne til højere lønninger. For investorerne betyder det, at de må investere mere i Healthcare og energiselskaber og mindre i forbrugssektoren og teknologi, og lægge vægt på dividende-betalinger, skriver Merrill.
Uddrag fra Merrill:
Global Growth Weakening Fast, Fed On Track To Make Matters Worse
Declining odds for a quick resolution of the Ukraine/Russia conflict have darkened global growth prospects already affected by the biggest U.S. and European inflation shock since the 1970s and virus shutdowns in China.
With the Fed also telegraphing aggressive plans to re-anchor inflation closer to its 2% target, financial conditions have tightened meaningfully, creating growing headwinds for the U.S. economy. Credit spreads have continued to decompress, mortgage rates have surged to their highest level in about 12 years, and the dollar has surprised to the upside.
The dollar’s sharp 8% year-over-year (YoY) appreciation on a trade-weighted basis, along with the global energy-supply crisis and collapse of business/consumer confidence and growth prospects in Europe are materially dimming the outlook for the manufacturing ISM Index. We now believe that conditions are in place for the index to drop near the critical 50 level that separates expansions from recessions this year, with risks to the downside. Given its strong correlation with earnings revisions ratios and equity market returns, this faster-than-previously anticipated deterioration in the manufacturing ISM outlook further lowers our corporate revenues and profit forecasts.
According to surveys, U.S. sales in China and Europe have already declined as economic conditions in these two major contributors to S&P 500 revenues and profits have worsened. In fact, not least because the inflation shock is now slightly larger than in 1973-1974, Europe is moving closer to a recession, with real growth expected to be weak or zero this year. According to Applied Global Macro Research, eurozone consumer spending remained below pre-pandemic levels in Q1 2022, and it is now expected to be flat to lower over the next 12 months, as real disposable incomes are on track to fall to 2017 levels.
Basically, Europe is already in “stagflation” and faces risks of a serious economic crisis as it attempts to end its reliance on Russian energy
supplies. The negative effect of the Ukraine crisis on energy supply and prices as well as on business and consumer confidence creates significant headwinds for global growth and U.S. corporate revenue growth and profits.
While U.S. auto sales remain depressed due to continued supply chain problems and low inventories, pent-up demand for both motor vehicles and housing remains elevated. Nevertheless, consumer spending growth is likely to soften under the burden of high inflation and tightening financial conditions. Leading indicators for equipment investment in the U.S. and Europe are also starting to point to weak-to-moderate growth ahead, as higher inflation, rising interest rates, elevated energy prices, softening profits growth, and growing uncertainty and risk aversion start taking their toll on economic activity.
With labor, energy and materials costs surging and revenue growth expectations revised to the downside (we now see S&P 500 revenues decelerating rapidly from +12% year over year in Q1 2022 to about 5%, or less, by early-to-mid 2023), the U.S. corporate profit margins outlook has deteriorated significantly, with a quick and deep downturn next year even more likely than it seemed just two months ago, as discussed in earlier reports.
Indeed, 1) cost inflation tends to lag slowing revenue growth (inflation is a lagging indicator), causing margins to decline quickly
once economic growth starts to weaken, and surprisingly aggressive Fed tightening plans greatly increase the likelihood of this outcome; 2) as noted above, revenues from abroad are declining fast, not least because of negative dollar-appreciation effects; 3) slower business revenues and profits tend to restrain investment, further lowering economic growth; 4) an appreciating dollar encourages rising imports and discourages exports; 4) corporate net-interest expense will rise with interest rates; and 5) unprecedented labor-supply constraints are pushing labor costs up at the fastest pace in decades, eroding margins.
High input prices, such as for energy, can be inflationary or deflationary depending on how monetary policy responds. Up until now, with the U.S. money supply growing at the fastest pace since War World II (WWII), policy has been highly accommodative of rising input prices.
Investment Implications
The Fed’s plan to massively shrink its balance sheet over the next two years suggests the investment environment may become even more challenging. In our view, profit margins are likely to drop significantly from elevated current levels. We have thus increased our tactical tilt to more defensive assets and sectors by raising the allocation to the Healthcare and Utilities sectors while reducing the allocation to Consumer Discretionary and Technology. Dividend income is typically a bigger part of returns during downturns.
