“There is no avoiding the fact that US stock market is not cheap, however with some of the best run businesses in the world and the country now well established as the global technology leader some of that valuation premium is justified particularly given the problems that exist in other developed markets,” Lowcock added.
Risks
One risk to this relatively sunny scenario which could pull the rug from under the world economy is that the Federal Reserve may raise interest rates and choke off the flow of positive numbers. The dovish nature of the Janet Yellen Fed regime would suggest a low chance of any aggressive surprise moves though.
“The word which springs to mind when we look at the Fed is ‘patience’,” said Ian Kenny, head of fixed income at Smith & Williamson. “They are very mindful of global issues and the implications of their decisions in different parts of the world. They will also be concerned about the increasing strength of the dollar.
“While they had bumper jobs growth in June, that report followed the some very poor numbers in preceding months so the average is still not at a level which demands a rate rise,” he added. Kenny also noted that inflation in the US remains relatively subdued, which means the Fed is not having its hand forced.
The scale, dynamism and importance of the US economy can still be underestimated at times. The innovation and productivity that the US has in spades is as potent a force for economic good as ever.
China has many more people, the European Union as a bloc is larger too, but neither are as important to the world economy as the United States. A strong America makes for a healthy global economy and in the big picture could outway the troubles elsewhere.
