Get Ready for US Manufacturing Supercycle, BofA’s Quinlan Trumpets

Judging by the U.S. stock market’s strong performance this year, with the S&P 500 up 14.8% as of Friday, prospects look good for the domestic economy. While long-running predictions linger of a recession up ahead (it has yet to hit), foreign investment into the U.S. exceeds what any other nation attracts.

That is a good reason to plug money into American stocks, industrial ones in particular, according to Joe Quinlan, head of CIO market strategy for Merrill and Bank of America Private Bank. The situation makes investing in America a “veritable no-brainer,” he wrote in a research note.

Quinlan argued in favor of “one of the most enduring but unappreciated facts of economic life: that no country in the world—including China—attracts as much foreign direct investment (FDI) as the U.S.” The strategist noted that “the world’s top corporations are beating a path to the U.S. Nary a week goes by without another announcement of plans by a foreign firm to build a major new plant in Arizona, Georgia and a host of other states.”

One reason, he stated, is that consumer consumption remains high in the U.S.—higher than anywhere else: With only 4.5% of the global population, the U.S. accounts for 30% of world’s personal consumption, per the United Nations.

As an example, France’s TotalEnergies and Germany’s Tree Energy Solutions recently announced a plan to build a $2 billion synthetic natural gas plant in Texas. Quinlan ticked off the customary list of U.S. advantages, including low corporate taxes, high productivity and large research and development spending.

Certainly, S&P 500 industrial stocks have so far underperformed in the U.S.: They were down 6.9% this year, Yardeni Research reported. The investor malaise toward industrials and other cyclical stocks is the result of slowdowns both at home and abroad, Quinlan said. U.S. gross domestic product was just 1.3% in 2023’s first quarter, down from 2.6% in Q4 2022, the U.S. Bureau of Economic Analysis found.

The “longer view,” however, is that capital spending in the world’s largest economy is heading upward, Quinlan declared: “The U.S. is in the early stages of a manufacturing supercycle pivoting around renewable energy, electrical vehicles and batteries/charging stations, and semiconductors, in addition to rising spending in more traditional areas like ports, highways, grids, airports, and the like.”

Part of this “supercycle” opportunity stems from increased federal spending on infrastructure, renewable energy and chips, all of which is starting to make itself felt, Quinlan explained. Hence, investors should increase exposure to infrastructure-related industrial companies, especially those dedicated to renewables and the infrastructure supporting them.

Manufacturing construction in the U.S. is already soaring, he wrote, with outlays hitting an annual $189 billion in April, almost double what it was 12 months earlier, U.S. Census Bureau figures indicated.

Running “counter to the prevailing narrative about a ‘manufacturing recession’ in the U.S.,” Quinlan wrote, “with some help from abroad, factories are back in vogue in America.”