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What this video’s about:

In the latest edition of the Market Share, Paul Gifford, Chief Investment Officer at 1st Source Bank, and Rob Romano, Director of Research, dive into several pressing economic topics. The discussion spans government spending, the CHIPS Act, and the health of small businesses. Here are the key takeaways and insights from their conversation.

Government Spending and Deficit Concerns

One of the main points of discussion was the excessive government spending in Washington. The U.S. government continues to grapple with a significant deficit—around $1.7 trillion last year, and it’s expected to be similar this year. Rob Romano voiced serious concerns over this fiscal imbalance, but is optimistic about a new piece of legislation, the CHIPS Act.

What is the CHIPS Act?

This $39 billion bipartisan legislation aims to boost semiconductor manufacturing within the United States. How? Through a mix of grants, loans, and tax breaks. Romano emphasized the strategic importance of this act:

“The CHIPS Act is a $39 billion bipartisan piece of legislation to promote semiconductor manufacturing here in the states and is comprised of grants, loans, and also tax breaks.”

Despite being a global leader in semiconductor design and research, the U.S. only produces 12% of the world’s semiconductors. The CHIPS Act aims to bridge that gap. Major players like Intel, Samsung, and Taiwan Semiconductor are already investing big bucks in facilities across the U.S.

Intel is building a large campus in Ohio. Samsung is expanding in Texas. And Taiwan Semiconductor is adding a facility in Arizona. The increase in semiconductor manufacturing capabilities should have long-lasting benefits for the U.S. economy in the future.

A close-up of a fabricating machine creating a microchip

Challenges Facing Small Businesses

The Market Share also highlighted the vital role small businesses play in the economy and the hurdles they face. Rising costs, inflation, and talent retention topped the list. Romano pointed out that small businesses are facing some of their toughest times yet, with an index of small business health currently at levels seen in 2013. Access to credit is also a major challenge, with small businesses grappling with much higher borrowing costs compared to their larger counterparts.

“One of the measures of small business health is an index that is currently at levels of 2013… and has spent 28 consecutive months below the 50-year average,” noted Romano. This stark statistic highlights the tough environment small businesses are operating in today.

Corporate Earnings and Market Valuations

The Market Share wrapped up with a discussion on corporate earnings and market valuations. First-quarter earnings came in as expected, with strong margins. However, there were concerns about future performance from consumer-focused giants like McDonald’s, Starbucks, Target, Home Depot, and Lowe’s, who reported reduced foot traffic and customers opting for lower-priced items.

Despite this, full-year earnings are expected to grow by 10-12%. It’s a lofty but attainable target. Market valuations remain high, with metrics indicating that we are in roughly the 90th percentile. Market valuations are on the high side, indicating an optimistic sentiment among investors.  This has contributed to a 30% increase from the lows in October.

Conclusion

The road ahead may present its share of challenges, but it also holds opportunities for growth and innovation. From government spending and strategic legislation to the state of small businesses and corporate earnings, it’s more important than ever to stay informed.  Watch the full video for more in-depth analysis on these key trends, especially in semiconductor manufacturing.

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