There is no that the US faces some difficult times ahead. Figures just released show that unemployment has hit a 26-year high of 9.8 per cent. US consumers are also excessively indebted and are unlikely to recover their spending fervour anytime soon.
In addition, the US government’s stimulus package of $1.5 trillion will leave the country with a huge amount of debt which will no doubt drag on future economic growth. Coupled with structural problems like an aging workforce, cripplingly expensive healthcare system and a narrow tax base and the US economy appear s to have a pretty bleak future.
While it would be easy to allow events to paint a negative picture of the prospects for the US, in reality there is not as much doom and gloom for investors as you might think. For now it is still the world’s largest economy and its capital markets still account for over a third of the world’s market capitalisation. Although there are undoubtedly many problems for the economy still to overcome, they are not all that different from those suffered by the other developed nations. In Britain they are painfully all too familiar.
Source: Financial Express Analytics
Moreover, the signals coming from the markets are quite positive. The S&P 500 index has risen 24.48 per cent in the six months to 5 October 2009 even though in that time the weakness of the dollar has eroded some of those gains; in sterling terms the index still made 15.61 per cent and has carried with it the IMA North American sector, which returned 15.62 per cent for the same period.
Adrian Brass, manager of the Fidelity American Special Situations fund, believes there are positive signs for an economic recovery: "Companies are finding it easier to get loans than they were six months ago and financing cost are starting to normalise. In addition, the housing market which was at the heart of the crisis is showing signs of forming a base for recovery. Housing has become more affordable and people are reacting with sales transactions recovering for the first time in two years; stability in the housing market is key for an economic recovery."
Furthermore, Brass points to the reaction of corporate America to the recession as being another positive for investors, with the fall in costs being the largest in 50 years. He thinks this will make many US companies more profitable in the rebound than predicted and expects to see upgrades to earnings forecasts.
So, while there may well be many challenges ahead for the US economy there is also the very strong possibility of an economic recovery as well. This is good news for North American equities which are still 30 per cent below their peak levels.
Also of benefit to investors is the vast array of stock picking opportunities now presenting themselves, as some firms do better in the recovery than others.