U.S. Market Outlook: Resilience Amid Uncertainty
By Shawn Lee, Portfolio Manager, SGH Australian Small Companies Fund
Welcome to Our US Market x ASX Small Caps Series
As part of our ongoing commitment to delivering valuable insights to Australian investors, Shawn Lee, Portfolio Manager of the SGH Australian Small Companies Fund, recently embarked on an extensive research trip across the United States, meeting with over 40 companies spanning critical sectors like technology, automotive, insurance, and healthcare. This series unpacks the essential takeaways from those conversations, providing a closer look at how American businesses navigate challenges such as inflation, labour constraints, regulatory risks, and the fast-approaching U.S. presidential election. In each article, we explore a specific sector, connecting the dots to help you better understand the opportunities and risks on the horizon.
Stay tuned as we explore each sector, from stocks making waves to advancements in AI and more.
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Resilience Amid Economic Headwinds
Despite recent weaker U.S. economic data, many companies we spoke with remain optimistic. For instance, businesses in the retail sector, like homewares retailer Williams-Sonoma and SME e-commerce platform BigCommerce, reported that forward demand signals have not meaningfully slowed. Even in more discretionary sectors, such as automotive, consumer affordability—though stretched—has not yet resulted in a sharp decline in sales. Given the prevailing economic challenges, including high interest rates and inflationary pressures, this resilience was somewhat surprising to us.
Interestingly, while consumer sentiment may weaken soon, the upcoming U.S. presidential election may spur fiscal spending, supporting corporate earnings. The consensus among the companies we engaged with is that a recession in 2024 is unlikely, as the inflationary pulse appears to be easing. There is even potential for interest rate cuts before Christmas, further bolstering equity markets.
Labour Constraints Easing Slowly
The U.S. labour market continues to be tight, but we noted some divergence in how companies are managing their workforce challenges. In white-collar sectors like technology, layoffs have led to a normalisation of workforce conditions. Conversely, blue-collar industries, such as automotive aftermarket retailing, still struggle with high staff turnover. For example, Autozone reported turnover rates of 40% in their distribution centres—double the pre-pandemic levels—indicating that labour constraints in some industries are likely to remain a structural issue.
Companies are responding to these labour challenges by prioritising workforce productivity, with many emphasising leveraging technology to drive efficiency gains. AI is seen as a key enabler in this area, helping companies optimise their operations amidst ongoing workforce shortages.
Regulatory Risks and Election Uncertainty
Regulatory risks are at the forefront of many U.S. companies we have met with. The onshoring of manufacturing and supply chains—driven by policies such as the CHIPS and Science Act and the Inflation Reduction Act—has led to rising costs likely to be passed on to consumers. In the tech industry, for example, Qualcomm noted that reshoring chip production in the U.S. will be significantly more expensive than continuing to source from existing Taiwanese supply chains. The higher costs will likely be borne by customers such as Samsung and Microsoft, which could create pricing pressures across the value chain.
Regarding the U.S. presidential election, most executives we spoke to did not expect significant disruptions to their business activities, even as the election draws near. The fiscal spending that supports industries like defence, cybersecurity, and critical infrastructure is expected to persist regardless of the election outcome. That said, specific sectors—like electric vehicles (EVs)—could face volatility depending on policy shifts under a new administration, mainly if there are cuts to the current subsidies supporting the sector.
Conclusion: Stability Now, Uncertainty Ahead
The U.S. market remains resilient despite economic challenges, with businesses continuing to show strength across various industries. While the near-term outlook appears stable, risks remain as we head into 2025. Inflationary pressures could resurface, and policy shifts following the presidential election could create headwinds in specific sectors. However, for now, the outlook remains positive, particularly with the potential for rate cuts and fiscal stimulus on the horizon.
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Thank you for reading U.S. Market Outlook: Resilience Amid Uncertainty, the first article in our US Market x ASX Small Caps Series.
If you want to explore more, check out our other articles, covering the Insurance Market, the US Healthcare Sector, the Automotive Industry at Crossroads, Artificial Intelligence Innovations and ASX Stocks Making Waves in the US.
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