Investment themes
Dynamics of full employment
Full employment changes the dynamics of US growth. To date, the US economy has been able to grow without experiencing wage growth or margin pressure. This will change from here and may make it more difficult for companies to grow earnings.
Visible growth gap
The gap between the US and the rest of the world will become more visible. If the world is slowing, the gap between countries is less obvious, but if the US is growing quickly, and contending with higher interest rates, it will look different to the rest of the world.
Backing international equities
Global equities are under-owned and if the economies turn, huge flows could move their way. US equities are expensive and have seldom sustained valuations at their current levels. They have also benefited from the strong consumer story.
Industrial recovery
Favouring industrial/commodity stocks over consumer stocks. Core consumer prices have held up better than producer prices and so consumer companies have had pricing power. This has flattered US stock markets where there are more consumer companies. At a time when commodity prices may recover, there is likely to be a shift from consumer to more industrial and capital goods.
No China crisis
China is not a disaster. Although the prevailing view has been that Chinese policymakers have been trying to stimulate the economy and have failed, it is only over the past 12 months that real stimulus measures – devaluing the currency, for example – have been put in place. As such, the situation in China, and its likely growth rate, may have been misjudged.
