The other side of the coin
There are those, however, that take a much more positive view of the prospects for US equities.
Canaccord Genuity Wealth Management CIO Nigel Cumming, writing in the firm’s latest News and Views publication for example, while admitting that many commentators are dismissive of prospects for US equities in 2016, largely for the reasons mentioned above, points out that, “the annual average growth rate of between 2%-2.5% is much lower than post-World War II previous recoveries, which have averaged nearer 4%.”
Adding that a combination of low inflation and this modest growth will allow the Fed to continue with its accommodative policy for a very long time yet, Cumming argues that while there are some concerns for the US earnings outlook, the overall picture has been distorted by the energy sector.
“We believe that this drag will diminish in 2016 and suspect that US earnings, and therefore US equities, may surprise on the upside going forward. Another reason for perhaps a more positive view than the consensus is that 2016 is, after all, an election year and historically that has proved beneficial for equities whatever the result, although the market does tend to do better with a Democrat victory,” he adds.
Charles Kantor, manager of the Neuberger Berman US Long Short Equity Fund is also positive on the prospects for US equities, but admits that 2016 is likely to require increasing selectivity.
Kantor believes that the recent falls seen in the US has shifted the valuation fulcum slightly, adding: “Equity valuations in the US already appear valued for very slow growth, tilting closer to the stagnation view of the world rather than a view for long-term normalisation. Thus, any sense that the global economy is not heading toward either a recession or secular stagnation could be very well received by investors in risk assets.”
There is no way to know for certain exactly how much further the US equity bull market has left to run, but the sheer length of the rise has left investors craning their necks to try and catch a glimpse of exactly how far up the hill they actually are and how steep the next fall might be.
