Despite being late in the cycle, the US market should continue to please investors for at least a year as earnings growth and business and consumer strength remains strong, according to JP Morgan’s global market strategist, Kerry Craig.
Speaking on the firm’s Guide to the Markets for the next quarter, Craig said that while “the back half of 2019 will start to be a bit more troubled in terms of outlook” for the US, he didn’t see a slump in the next 12 months.
“The US is still one of our preferred markets due to its scope of earnings growth,” Craig said.
The markets saw earnings growth of 25 per cent year-on-year in the first quarter, and was looking like they can do plus 20 per cent this year too because of the tax and fiscal stimulus policies that were coming through that were supporting the consumer.
The growth didn’t just come from tax – about a third came from both international and domestic revenue respectively.
Source: JP Morgan Guide to the Markets, Australia 3Q 2018
Craig clarified that investing in the US still wasn’t “just putting all your eggs in one basket” by relying on earnings growth, as there were other factors that were still making the US attractive.
“For the second quarter, we’re looking for a GDP number that’s four per cent growth, which is remarkable given how long through the cycle it actually is now we’re in that tenth year,” he said as an example.
Business and consumer sentiment numbers in the US also “haven’t rolled off a significant level given the impact of politics and trade concerns”, further making it a preferable market.
“The US is largely quite insulated from the rest of the world when it comes to these things because they aren’t a big exporter of goods, so that gives us some faith that this economy isn’t going into recession any time soon, and that you will see a very solid year of growth coming through.”
Craig said that those fearing the US boom would be followed by a bust had little to fear.
“For us, it’s a booming followed by a boring. You’re going to see the constraints of the labour market start to bite on growth, and that’s why we think the Fed is very justified in its rate hiking cycle.”
He pointed out that the Fed was raising rates because it could, rather than because it had to.