The Rerating Horserace

The call to the post for the US manufacturing renaissance happened earlier than most realize. While it’s true that recent stimulus efforts are bolstering reshoring efforts, legislation isn’t the entire reason for the revival. The growth of artificial intelligence (AI) and its role in automation, semiconductor chip foundry and data center construction, energy grid electrification, and increases in green energy generation, are all changing the US industrial landscape. As reshoring efforts mount, manufacturing increases, and investors recognize the compounding value, we think fundamental research and prudent stock picking will be crucial for identifying the pacesetters of a coming rerating horserace.

The lost decade of industrials

For much of the early 2000s, North America underinvested in its industrial base. Starved for growth, US-based capital goods companies focused on productivity and margin improvement, moving supply chains to cheaper locations. Globalization and outsourcing were the trends. Former President Donald Trump’s tariffs on Chinese goods further complicated supply-chain logistics in 2016. These new policies made supply-chain security an issue for boardrooms, kindling discussions about reshoring.

In 2020, the pandemic broke supply chains and accelerated reshoring efforts. By 2022, a US capital expenditure renaissance was underway, with companies prioritizing supply-chain security while simultaneously preparing for a growth cycle ahead. Companies have and continue to commit significant capital to these projects after years of only modest spending, as exhibited by the data on private fixed investment in manufacturing (see Exhibit 1) from the US Census Bureau.

Exhibit 1: US Infrastructure Spending Booms

Exhibit 1: US Infrastructure Spending Booms