Authored By: Jon Maier Supply Chains And The Downstream .
Authored by:Jon MaierMichelle Cluver, CFADate: 07/06/2021Topic: Sector Views, Supply ChainSupply Chains and the DownstreamImplications for SectorsThe COVID-19 pandemic disrupted global supply chains and reveled their fragility. As the global economyre-opens and businesses struggle with material and labor shortages, increased demand for goods andservices place additional pressure on tenuous supply chains. While supply constraints impact most of theeconomy, there are certain sectors which are either more or less affected by this disruption. Looking deeperinto the current supply chain constraints is important for understanding the temporary or permanent natureof the current inflationary pressures and consequently how to position portfolios for this market environment.Revised Demand Expectations and Supply Lead TimesThe change in expected demand between April 2020 and April 2021 was unprecedented and supply chainsstruggled to keep up. While some supply chains are reasonably nimble to shifting demand pressures, wefound that others can take months to resolve. The time it takes to create each product as well as existingcapacity to increase production are factors that impact the nimbleness of supply chains. Global supplychains combined with just-in-time (JIT) manufacturing and ordering leaves minimal room for errors.Far More than a Semi StorySemiconductors are a good example of an industry with long lead times with high capacity utilization. Theyare the oxygen of our digital economy and their production affects many sectors. As illustrated in the graphicbelow, the current semiconductor shortage has implications across most sectors and industries, affectingproducts from cars and solar panels all the way to food products.The current semiconductor chip shortage is partially due to sharp changes in expected demand. As theCOVID lockdowns began, companies reduced their chip orders to avoid surplus inventory. Unlike prioreconomic contractions, there was a rapid increase in consumer demand for a whole swath of products thatdepend on semiconductor chips for their operation. In 2020, semiconductor demand increased 10.4% anddemand for 2021 is forecast to expand a further 12.5%.1 Capacity utilization in the semiconductor industrytypically runs at around 80%, with some facilities at between 90-100% of capacity.2 The inelasticity of chipproduction exacerbates the current supply shortage as it requires billions of dollars in capital investment andseveral years to open a new silicon chip facility: an expensive solution that will not have any effect onfulfilling short-to-medium term demand.While the semiconductor shortage is currently the most discussed supply chain bottleneck, it is certainly notthe only supply chain problem. The shortage of the raw materials, polyethylene, polypropylene andmonoethylene are disrupting the supply chain for plastic manufacturing. This shortage has implications fromsmartphones and car manufacturing all the way to food packaging and exercise equipment.3 Moving goodsaround the globe has been one of the causes of supply chain constraints and increased costs of shipping isalso having an impact. The Baltic Dry Index, an indicator of global shipping costs, has increased 143%YTD.4OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYADVISOR LOGIN1
Just-in-Case Driving Extra DemandAs a result of recent supply shortages, manufacturers have been forced to rethink their use of just-in-timesupply chain management. Diminished faith in ultra-complex global supply chains are causingmanufacturers to consider stockpiling certain raw materials and components that are believed to bevulnerable to future supply disruptions. This shift from just-in-time ordering and supply chain management toa just-in-case mindset has exacerbated the current increase in demand.Elevated uncertainty surrounding expected demand resulted in companies ordering additional supplies, justin-case. This process was repeated by many companies, thus stressing supply lines. Reasonably similaroccurred with toilet paper and other key staples back in March 2020. This raises questions about the truelevel of increased demand. Is the elevated mismatch being driven by a sustained increase in demand, or isit partially driven by current uncertainties?OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYADVISOR LOGIN2
Lumber is a good example and has important implications for the inflation debate due to its impact on houseprices. By mid-May, lumber prices increased by almost 180% on a year to date basis. During the rally inlumber prices, supplies were being hoarded by builders and retailers due to concerns regarding futuresupply.14 These hoarders have become sellers, and since the highs of May, lumber futures for July deliverydeclined 55%.15 This reflects the speed at which areas can shift from hoarding to surplus as demandexpectations normalize.Similarly, the Bloomberg Commodity Index pulled back in mid-June. Two factors contributed to this: The Federal Reserve (Fed) brought forward the date when they are likely to start increasing interestrates. This supported the value of the dollar while weighing on commodity prices.China, who accounts for 47% of the global consumption of refined base materials,16 indicated thatthey will begin selling some of their industrial metal stockpiles in batches as a way to dampenproducer price increases that have been driving concerns over global inflation.Reduced commodity prices are likely to lessen the inclination for businesses to hoard production inputs.Improved clarity on demand has the potential to ease some of the strain on supply chains.Potential Impact on Different SectorsRestarting the economy has been almost as disruptive as shutting it down. Dramatic changes in demandexpectations have resulted in substantial mismatches between supply and demand. As you move down thesupply chain, these mismatches and bottlenecks are accentuated. The graphic below outlines a few of thekey supply chain disruptions and how they are impacting different sectors.OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYADVISOR LOGIN3
In our view, the Consumer Discretionary sector is likely to be the most impacted by the current supply chainconstraints. This view is driven by two major supply chain pressures having a significant impact on a largeportion of the sector.1.As the most labor-intensive sector, labor shortages and the potential for higher wages may have thelargest impact on this sector.21 This has implications across the sector; from department stores andhospitality services all the way to e-commerce platforms.OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYADVISOR LOGIN4
2.Typically, during an economic recession, consumers delay discretionary and durable purchases. Assuch, this is a sector that generally had a large downward revision in demand expectations duringthe first half of 2020. This had implications across the Consumer Discretionary sector from homeappliance manufacturers all the way to auto manufacturers. Due to substantial revision to demandexpectations, this sector has been one of the worst impacted by the semiconductor shortage.But where there is disruption, there is also opportunity. The last year stress-tested global supply chains andrevealed the need for improvement. The Industrials sector stands to benefit from increased capitalexpenditure as companies rethink their supply chains. While we believe this is a longer-term benefit that theIndustrial sector is likely to enjoy, it is currently still adversely impacted by both raw material and laborshortages.Sector ViewsWhile supply chains constraints are an important consideration, there are numerous factors impacting ourcurrent sector views. The table below outlines these views.CURRENT VIEWS ON U.S. SECTORSPositive FactorsThis sector continues to benefitfrom COVID-19 disruptionincreasing the adoption of digitalcommunication and entertainment.We believe the reopening rotationis almost complete. While improvedeconomic growth sentiment mayshift attention to value focusedsegments, we believe that into thesecond half of the year we arelikely to experience improvedbalance between growth andvalue.CommunicationServicesThe Consumer Discretionary sectorstands to benefit from pent updemand, an elevated savings rate.However, the economy has likelyalready experienced the increasein demand driven by the stimulus.Consumer DiscretionaryConsumers have adapted toordering more items online.Additionally, retailers have adaptedto the current environment throughincreased availability of onlinedelivery as well as order online andpickup in store options.OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYNegative FactorsOverall ViewAdversely impacted by the semiconductorchip shortage.There is bipartisan support for increasedregulation in this space. The start ofantitrust investigation into mega-capinternet companies is also a risk factor forthe sector. But this a long and windingroad.Market weightCurrently, our preferencesare in the Gaming & Esportsand Social Media segmentswithin this sector.We believe that the ConsumerDiscretionary sector is likely to be the mostimpacted by the current supply chainbottlenecks. Additionally, as the mostlabor-intensive sector, it has a lot to losefrom wage pressure.22Online retail and household durables couldbe adversely impacted by the fullreopening of the economy. Due to thescale of these industries relative to theportions that should be positively impactedby the reopening (hotels and brick &mortar retail), overall, the impact of thereopening is likely to be negative.23Market weightThe Consumer Discretionary sector has ahigh correlation with the housing market.The strength of this market has been apositive for the Consumer DiscretionaryADVISOR LOGIN5
sector; however, reduced affordabilitycould weigh on discretionaryconsumption.24Elements of the antitrust investigation orincreased regulation have the potential toimpact on large e-commerce players.Large companies in this space may beforced to separate their logistic andplatform operations from their private labelbusiness.25Consumer StaplesThis sector may work as a gooddefensive play against risingCOVID-19 cases. During thepandemic, spending patternsshifted to favor essential retail.This sector has benefited fromhigher demand for householdproducts, PPE and disinfectionproducts.EnergyFinancialsThe Energy sector benefits fromincreased community mobility. Aspeople start engaging in society;commuting, traveling and generallygetting on with their normal life,demand for crude products shouldrise. While the U.S. has generallyreopened, crude demand stands tobenefit from improved globalreopening and growth.The Financial sector benefits fromtransitory inflation that is good forGDP. Provided the spike in inflationreadings reflects the faster-thanexpected improvement ineconomic activity and temporarysupply challenges can be resolved,faster economic growth is likely tobenefit cyclical sectors such asfinancials.28OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYConsumer Staples have been impacted byhigher input costs and labor shortages.Higher prices have started to be passedonto consumers while labor shortagesremain a constraint to restoring fullproduction capacity.26Spending is likely to shift away fromnecessities towards discretionary asvaccine distribution continues. We believethe abundance of choice is likely to weighon this sector unless pricing pressurereached the point where consumers needto prioritize staples. While there is pricingpressure, at this stage we do not believethat this risk is likely to be realized.The Energy sector is dependent on globaldemand and mobility. Consequently, thissector is one of the most sensitive to risingCOVID-19 cases. The increased spread ofthe Delta variant is a risk to improvedglobal mobility.A Biden presidency raises the risk ofincreased regulation favoring clean energyand climate friendly policies.UnderweightMarket weightESG thinking is increasingly beingincorporated into corporate governance,therefore, even without regulatory shifts,the market is leaning into cleaneralternatives.27This sector remains highly exposed to theimpacts of COVID-19.OverweightADVISOR LOGIN6
The Financial sector stands tobenefit from the shift from growthto value as the market looksforward to the economy more fullyreopening in the second half.Fiscal stimulus and aninfrastructure bill are reflationary.This increases expectations forhigher interest rates in the futurewhich is beneficial for the financialsector.The Financial sector is attractivelyvalued relative to the rest of theS&P 500 GICS sectors.29The Health Care sector remains adefensive hedge against increasedCOVID-19 cases. Additionally,improved Federal assistance fordealing with the pandemic is also apotential positive for this sector.Health CareThe social portion of ESG coulddrive increased corporate spendingon health care.Given Democrats only have a smallmajority in Congress, we are likelyto see increase health carecoverage but are less likely to seeany aggressive legislation thatcould adversely impact pharma orother segments of the health caremarket.30Drug pricing pressure remains a risk factor.The Biden platform advocates lowering theMedicare qualification age and reducingreimbursement rates for hospitals, twopolicies that could potentially reducerevenue for hospitals, although volumeincreases may offset.The Industrials sector combinesboth cyclicality with a qualityorientation.31 There are also severalpotential tailwinds for this sector: A possible Infrastructure billof 2 trillion. Reshoring of supply chain. Automation Improved certainty regardingtariffs and taxes couldunleash pent up capex withinnon-tech sectors.32 Should elevated inflationbecome permanent, thissector stands to benefit fromincreased investment toexpand productivity and raiseproductivity.33IndustrialsOUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYOverweightOverweightRobotics & AI stand tobenefit from reshoring andincreased automation.The Biden administration may imposetougher emissions requirements onairlines.Infrastructure andespecially greeninfrastructure are key focusareas. As such, we believethat PAVE and CTEC arelikely to be keybeneficiaries within thisspace.ADVISOR LOGIN7
Tech hardware and tech-focusedindustrials stands to benefit fromproductivity and capex potentiallybecoming dominant trends.34Information TechnologyTechnology has had an increasedrole in our lives as a result of thepandemic. The increased adoptionof certain key disruptivetechnologies is likely to remain in apost COVID-19 world as societiesadapt to these new technologies.This shift will likely continue after avaccine is widely available.The Info Tech sector benefits fromreduced tariff risk as well as a moreaccepting approach to immigrationwhich is supportive for the techtalent pool.MaterialsThis sector benefits from thecurrent reflation trade. Risingcommodity prices and a weakerUSD benefit this sector. Chinesegrowth is positive for commodityprices. Improved trade relations aswell as a comprehensiveinfrastructure plan aretailwinds for the sector.Industrial focused REITs areexpected to benefit from reshoring.This is likely to play out overseveral years as companiesreconsider their supply chains.Real EstateOverall, the real estate sector hasbenefitted from reopeningoptimism. As the U.S. approachesherd immunity, there is anincreased focus on life getting backto ‘normal’. This is echoed by thegrowing corporate push to returnto the office.OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYIncreased regulatory scrutiny is a risk forthis sector. There is bipartisan support forincreased regulation in this space.The Info Tech sector does not stand tobenefit from the reflation trade. Higherinterest rates are typically negative for thissector. In our view, the reflation trade isdrawing to an end and thus this is nolonger a major headwind.Continuing semiconductor shortage maylimit hardware sales despite demand.The Federal Reserve (Fed) more clearlyacknowledged the potential for higherinflation combined with the messaging thatthe first interest rate increase may occur in2022 or 2023 rather than being furtherout. This shift in messaging has helpedsupport the value of the US dollar whileweighing on commodity prices.Increased regulations, especially thosefocused on preventing climate change is apotential negative.Commercial Real Estate is an area thatcontinues to be hard hit by the pandemic.Another wave of COVID cases within theU.S. is likely to have a large negative effecton the Real Estate sector, especially Retailand Office focused Real Estate.While a return to ‘normal’ is beneficial forshopping malls, this does not negate thelong-term structural trend away from brickand-mortar retail towards e-commerce.Market weightCloud Computing,Cybersecurity, CleanEnergy and CleanTech aremajor potentialbeneficiaries.Market WeightIncreased focused onalternative energy sourcesand energy storage shouldbe beneficial to Lithium andBattery Technology (LIT).This theme also stands tobenefit from increasedElectric Vehicle adoption.UnderweightIndustrial Real Estatestands to benefit the mostfrom reshoring while beingleast exposed to COVID-19risks.Rising interest rates, which increases thecost of financing are a threat if costscannot be passed along to tenants.ADVISOR LOGIN8
Utilities remain a defensive hedgeagainst rising COVID cases.UtilitiesCapex costs associated withshifting towards green powerproduction may be partially offsetby government support.The Utility sector’s low beta and high yieldmean that this sector is less sensitive tothe current cyclical improvement ineconomic growth while being adverselyimpacted by the higher market yields thataccompanied those improved growthexpectations. As such, the Utility sector’sdefensive properties detracted during thereopening rotation.35UnderweightA Biden presidency is likely to be negativefor this sector. The potential for increasedclimate-related regulations are likely todetract from this sector.Rising inflation expectations andexpectations for higher future interestrates adversely impact this sector.Footnotes:1. MRP, Semiconductor Industry Set for Another Year of Soaring Chip Prices, Already Raking in Record Revenues,June 7, 20212. Semiconductor Industry Association, Chipmakers are ramping up production to address semiconductor shortages.Here’s why that takes time, 2/26/20213. Harvard Business Review, The latest supply chain disruption: plastics, 3/26/20214. Bloomberg data as of 6/28/20215. Deloitte, Semiconductors – The Next Wave, 4/20196. Datacenterknowledge, Its Little Things How Chip Shortage Affecting Data Center Industry, 5/17/20217. Bloomberg, Next Victim of Chip Shortage Will Be Your Home Internet Router, 4/8/20218. Zdnet, The Global Chip Shortage Is A Bigger Problem Than Everyone Realized And It Will Go On For Longer Too,5/4/20219. Bloomberg, How a Chip Shortage Snarled Everything From Phones to Cars, 3/29/202110. Caranddriver, Used Car Prices Rising Fast with Some Models Up 30 Percent, 6/5/202111. Nasdaq, FCC studying impact on chips shortage on U.S. communications sector, 5/11/202112. Techmonitor, The global chip shortage could be here to stay, 2/24/202113. National Defense Magazine, Semiconductor shortage shines light on weak supply chain, 5/21/202114. WSJ, Lumber prices are falling fast, turning hoarders into sellers, 6/15/202115. Bloomberg data as or 6/29/202116. World Bank Group, Commodity Market Outlook: Causes and Consequences of Meta Price Shocks, Apr 202117. WSJ, Food supply chains are stretched as Americans head back to restaurants, 5/21/202118. BofA, The RIC Report: If you want less of something, tax it, 6/8/202119. CNBC, The global chip shortage is starting to have major real-world consequences, 5/7/202120. Bloomberg, Apple finally feels the global semiconductor shortage, 4/28/202121. BofA, The RIC Report: If you want less of something, tax it, 6/8/2021OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYADVISOR LOGIN9
22. BofA, The RIC Report: The good news about bad prices, 5/11/202123. BofA, The RIC Report, 4/13/202124. BofA, The RIC Report: The good news about bad prices, 5/11/202125. The Journal, Congress’s case to break up Amazon, 6/17/202126. WSJ, Food supply chains are stretched as Americans head back to restaurants, 5/21/202127. CFA Institute - Webinar, The Impact of the US Presidential Election and COVID-19 on US Equity Valuations,10/21/202028. BofA, The RIC Report: The good news about bad prices, 5/11/202129. Bloomberg data as of 5/28/202130. BofA, IG Healthcare Election Impacts, 11/4/202031. BofA, The RIC Report, 4/13/202132. BofA, The RIC Report, 4/13/202133. BofA, The RIC Report: The good news about bad prices, 5/11/202134. BofA, The RIC Report: The good news about bad prices, 5/11/202135. NDR, NDR mid-year outlook: inflation debate and market implications for the second half, 6/17/2021DefinitionsBeta: A measurement of volatility, or systemic risk, compared to the market as a whole.Bloomberg Commodity Index: This index reflects commodity futures prices. The index is weighted two-thirds by trading volumesand one-third by global production.Global Industry Classification Standard (GICS): This is a standardized classification system to sort business entities by sector andindustry group. It consists of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries.S&P 500 Total Return Index: The index includes 500 leading U.S. companies and captures approximately 80% coverage ofavailable market capitalization.Investing involves risk, including the possible loss of principal. Narrowly focused investments may be subject to higher volatility. Technologythemed investments may be subject to rapid changes in technology, intense competition, rapid obsolescence of products and services, loss ofintellectual property protections, evolving industry standards and frequent new product productions, and changes in business cycles andgovernment regulation. There is no guarantee any security mentioned will remain in or out of the funds discussed.Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the funds. Brokerage commissions willreduce returns.Carefully consider the funds’ investment objectives, risk factors, charges, and expenses before investing. This and additionalinformation can be found in the funds’ summary or full prospectus, which may be obtained by calling 888-493-8631 or by visitingglobalxetfs.com. Please read the prospectus carefully before investing.This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of futureevents, or a guarantee of future results. This information is not intended to be individual or personalized investment or tax advice and shouldnot be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/ortax situation.Global X Management Company LLC serves as an advisor to the Global X Funds. SIDCO is not affiliated with Global X Management CompanyLLC.OUR ETFsABOUTNEWSRESEARCHCONTACTPRIVACY POLICYADVISOR LOGIN10
supply chain management. Diminished faith in ultra- complex global supply chains are causing manufacturers to consider stockpiling certain raw materials and components that are believed to be vulnerable to future supply disruptions. This shift from just-in-time ordering and supply chain
The Maier Latin Cup Awards were established by William J. Maier, Jr., in 1979 to repay in some way the special attention his Latin teacher at Huntington High School showed him, for it was this extra devotion to Latin and Latin students on the part of his teacher th
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The American Revolution, 1763-1783 By Pauline Maier This essay excerpt is provided courtesy of the Gilder Lehrman Institute of American History. INDEPENDENCE The Seven Years’ War had left Great Britain with a huge debt by the standards of the day. Moreover, thanks in part to Pontiac’s Rebellion, a massive American Indian uprising in the territories won from France, the British decided to .
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Jul 19, 2017 · Case Example Jon is a 10 year old boy currently receiving outpatient mental health treatment. Jon was referred to clinic by the school social worker due to ongoing disruptive behaviors. He is also currently being evaluated by the Committee on Special Education. Jon’s mother, Beth, re
Jon is kayaking in the Russian River which flows downstream at a rate of 1 mile per hour. He paddles 5 miles downstream and then turns around and paddles 6 miles upstream. The trip takes 3 hours. How fast can Jon paddle in still water? Solution: Here again we are doing a movi
the beautiful stand banners that we all use during the Championships. TOR Banners also provides the winning banners for each section. Jon will be in attendance for his third consecu-tive NABBA Championship next month. Jon is a personal friend and the doors that he is opening for NABBA and NABBA bands are remarkable. It was due to Jon’s hard .
Last previous edition approved in 2018 as A234/A234M – 18. DOI: 10.1520/A0234_A0234M-18A. 2 For ASME Boiler and Pressure Vessel Code applications see related Specifi-cation SA-234 in Section II of that Code. 3 For referenced ASTM standards, visit the ASTM website, www.astm.org, or contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM Standards volume information, refer .
