Macro Views
The US Economy
Although weakening along with the rest of the world, America’s economy is still in a healthier place than many developed market equivalents. Both household and company balance sheets look relatively robust, and we think profit margins, although likely to fall, are appealing.
Much of the US market’s performance in 2022 was driven by high interest rates. As rates increased, the future earnings for companies were affected as the cost of borrowing was now higher. This drove investors away from so-called growth stocks (such as the large US tech firms) and into value stocks, which are typically less impacted by interest rates.
These high interest rates aimed to combat high inflation. Now we think US inflation will move more decisively past its peak over the next few months. As a result, the Federal Reserve is likely to be able to slow the pace of interest rate rises and then probably stop hiking them altogether. Therefore, this headwind for US equities is likely behind us and see opportunity in the high-quality nature of the market.
Price pressures are also less entrenched in the US, particularly when compared to the euro area where producer price inflation is much higher, which is another positive sign for US equities.