CHIPS Act: A Boost for US-based Semiconductor Manufacturing
Since the CHIPS Act was passed in 2022, US$200 billion of new investment in US-based semiconductor manufacturing facilities has been announced. Many countries offer similar incentives, and the act’s main goal is to bring chip manufacturing capacity back to the US, so it isn’t expected to spur a big pickup in global semiconductor investment.
In fact, global capex plans for 2023 and 2024 are fairly subdued, but US investment could rise by about 60% from starting levels, assuming a five-year horizon for the announced projects. This will help US semiconductor manufacturing, although the initial GDP impact seems relatively small.
IRA: Lifting the Trajectory of Renewables
Since IRA’s enactment, nearly 300 announced initiatives have totaled over US$250 billion. Spanning solar, battery, storage, wind and hydrogen technologies, they should expand renewables output. Capacity additions of low-emitting technology through 2035 could reach 50 gigawatts per year versus the pre-IRA estimate of about 30 gigawatts, accelerating the achievement of US climate goals. Carbon emissions could shrink by 40% to 50% versus 2005—a major improvement over the pre-IRA estimates of 25% to 35%.
The yearly investment pace will likely vary, but the annual average is an estimated US$30–$55 billion, equivalent to a 0.1% to 0.2% GDP contribution the first year. It’s a meaningful advance for renewables, but much like CHIPS and semiconductors, isn’t likely to lead to persistent higher US growth and inflation.
Translating Macro Views into Asset Allocation
Fiscal policy, through direct government spending and tax incentives such as the CHIPS Act and IRA, has bolstered GDP growth, and they’re among many inputs that inform multi-asset allocations. Macro conditions and trends, as well as quantitative momentum and risk/return signals, for instance, are also in the mix.
We expect a gradual slowdown from above-expectations and above-trend growth. Meanwhile, inflation remains high but has continued to normalize. In this environment, we think it makes sense to have moderate exposure to risk assets, such as equities.
In addition to US stocks, we favor exposure to the UK, which currently offers compelling value. We’re cautious on emerging-market stocks, especially China, as policymakers seem to be prioritizing economic rebalancing over growth at all costs. Overall, we prefer a growth style tilt emphasizing quality fundamentals, such as strong balance sheets, positive earnings and attractive valuations.
Inflation has eased recently, but central banks will likely keep rates higher for longer. With the highest yields in 15 years, bonds offer attractive income potential and, in our view, renewed potential for diversifying equities. We favor US sovereigns, since policy tightening has been more extreme.
A global recession will likely wait for now, but unknown unknowns warrant caution. Multi-asset investors should allocate around the notion of economic resilience and a slow, steady normalization—not persistent reflation. As always, staying flexible and selective can help navigate a dynamic landscape.
