By: Scott Davis
Folks, in the link below please find our latest Melius Macro Views slide deck. Key takeaways below:
- 4Q19 marked the 4th consecutive quarter of a short cycle industrial recession, with a 5th earnings cut vs. a historical 4-6 quarter average. Implying we are nearing the end of this shallow and “normal” downcycle.
- 3 extra variables cloud the near-term outlook: 737MAX production cuts, election year noise, and coronavirus. SARS impact from mid-2003 provides some context on the latter. A 6th earnings cut in 1Q in April seems almost guaranteed at this point.
- 2020 capex guides are running way above trendline, with companies continuing to spend on supply chain localization, automation and industrial IoT.
- Sentiment indicators, including ISM and our Melius Sentiment Index inflected positive in January after a brief “downcycle.” Inventory data remains elevated, but company commentary indicates destocking headwinds are largely behind us.
- Industrial stocks have rallied recently along with the broader market, but relative valuations remain attractive on lowered numbers.