What’s happening: The recovery from the pandemic has created a wave of demand that manufacturers and a network of players involved in moving goods around the world have been unable to cope with. But after 18 months of pain, there are some signs that the condition is starting to improve.
Cargo is running smoother and the transit of goods has largely recovered from the initial shock of the war in Ukraine, Konstantin Krebs, a managing partner at Capstan Capital, an investment banking firm that works with investors in containers and shipping, told me.
“Containers are back in service and you can feel it,” Krebs said.
And the Morgan Stanley Business Conditions Index for July, released on Monday, showed “progress in improving terms of supply.” The proportion of analysts who say supply chain conditions are improving rose from 17% to 54%, with none reporting worsening conditions.
However: the timing of full normalization is still a guess.
According to a Morgan Stanley poll, 54% of respondents believe supply disruptions will end in the first half of next year, and nearly a third believe it will take longer.
Circumstances are still changing rapidly, making forecasting even more difficult.
An increase in infections associated with Omicron’s BA.5 sub-variant could spark a new wave of worker shortages and port clogs, Krebs said. It is also necessary to monitor the possibility of new sanctions against Russia or another round of blocking in China.
In the meantime, a global recession will sharply ease the pressure. The drop in demand will lead to a reduction in traffic in the supply chain much sooner than expected.
Taking a step back: How quickly supply chains return to normal will have major implications for inflation, which is driven in part by limited access to the supply of goods. Trends will help set the path for politicians like the Federal Reserve.
Tech companies limit hiring due to uncertainty
Other tech firms, including Google’s parent company Alphabet, Uber, Lyft, Snap and Twitter, have also announced plans to slow or suspend hiring.
Investor comment: Apple shares fell more than 2% on Monday. Since the beginning of the year, it has decreased by more than 17%. That’s slightly better than the broader S&P 500, which is down almost 20% over the same period.
The news put Wall Street on edge ahead of the big tech earnings report due next week. Apple is due to release the results on July 28th.
The big question is: are tech companies trying to get ahead of a potential drop in economic activity, or are they already seeing signs of a slowdown in their business?
In April, Apple warned that its revenue would fall between $4 billion and $8 billion due to continued supply chain disruptions. A strong dollar is also expected to be a major deterrent.
The mood on Wall Street is grim. It’s not necessarily bad
It’s no secret that investors were in a grim mood as fears of a quick withdrawal of central bank support and the growing possibility of a global recession are worrisome.
But the latest survey of global fund managers from Bank of America, released Tuesday, shows “a terrible level of investor pessimism.”
Global growth expectations are at an all-time low, while cash levels have not been this high since 9/11. The allocation of money to stocks hasn’t been this thin since the 2008 financial crisis.
What it means: For some, this may be a signal to start buying risky assets like stocks again. Investors are watching for a moment known as “surrender” when sentiment becomes so bearish that it can’t get any worse. This indicates that the bottom of the sell-off may be close.
“The sentiment is for stocks and loans to rise in the coming weeks,” said Michael Hartnett, chief investment strategist at Bank of America.
Also today: U.S. housing permits and U.S. building permits for June came in at 8:30 AM ET.