Perhaps more so than at any time in recent memory, the signs are pointing to one asset class in particular at the top of the tree as turkey and mulled wine loom. US equities have enjoyed a jet-fuelled rise since the election of Donald Trump, and there is a consensus that this is likely to continue into the new year.
The long-expected Federal Reserve rate rise has been safely negotiated, and as long as Janet Yellen is in charge, aggressive further moves which could spook markets seem very unlikely. Growth is buoyant by developed world standards at around 3% and unemployment has been persistently low.
The attraction of US equities is based not only on their merits, but the relative lack of merit in other asset classes. UK equities are likely to be weighed down to some extent by the back and forth of the Brexit negotiations set to kick off in March, while European equities have any number of macro headwinds to contend with, from the tapering down of ECB quantitive easing (QE) to the Dutch and French elections.
Then if we look east, there are serious question marks over both China with its slowdown, the magnitude of which nobody seems to truly know, and Japan which although its equities market has some bright spots, the country is still treading water economically despite the Bank of Japan throwing several kitchen sinks at its problems.
There is no shortage of professional investors publicly singing the praises of US equities. So much so that it could be a self-fulfilling prophecy, at least in the short term.
Jeremy Podger, portfolio manager of the Fidelity Global Special Situations Fund sees US domestic facing companies as the prime candidate to benefit from prevailing conditions over the Atlantic.
“Recent investor sentiment towards equities improved markedly after the Trump victory in the US presidential election, with his proposals around fiscal stimulus and protectionist policies being viewed as reflationary for the US economy,” he said. “This makes US domestic businesses relatively attractive and this is reflected in the new relative highs such stocks have been hitting.”
“In the short-term, the prospect of a stronger US currency and protectionist measures has put the recovery in emerging markets on hold. This is likely to be temporary, as it is difficult to see wide ranging anti-trade measures. “However, China remains an important part of the picture: we have seen it come through this year without incident but 2017 could bring new concerns. In addition, while there are expectations that higher US interest rates will cause a further strengthening of the US Dollar, the currency has come a long way in recent years and may offer limited upside.”
