Despite ongoing volatility across global markets, US markets have rallied throughout the summer, particularly in comparison to other regions. While the FTSE All Share index has fallen 18.5 per cent year-to-date, the S&P 500 is up 8 per cent and the Nasdaq is up 32 per cent (as at 15 October). 
The degrees of monetary stimulation already provided by the Federal Reserve and Congress are unprecedented, and so far, this had helped the market find its feet. However, the recovery in the US has not been a traditional one: it has not lifted all boats. Some 56 of S&P 500 stocks are still down year-to-date (as at 30 September), suggesting some companies are being left behind.
Our role as active managers is to find gems that the market has cast aside because of short-term noise. When looking at the market thematically, the key trends from before the pandemic remain in place today: growth is still outperforming value, tech is significantly rallying, and financials are being left behind.
But as stockpickers, we continue to focus on individual quality companies that we think can weather the economic storm, however long it may last. That means looking beyond market noise and having conviction in companies with good management who are committed to strengthening their balance sheets, while also finding opportunities that are out of favour in the current climate.
Next-generation technology
Next-generation technology has been one of the biggest stories in US markets for 2020. Over the last six months, we have added to our holding in technology firm Qualcomm, which specialises in intellectual property, semiconductors, software, and services related to wireless technology. Not only are Qualcomm’s fundamentals strong, but we also see a promising outlook for long-term growth as we move towards 5G infrastructure globally. The semiconductor company is often overlooked due to its historical dependence on handset growth. However, the initial deployment of 5G networks has started to show through in Qualcomm’s results this year and this is a trend we believe is in the early innings. So we believe the best is yet to come at the world’s largest mobile chipmaker.
Rapid transition to online
Digital commerce is expected to approach $5trn in value by 2021 as online continues to take share from offline commerce. The per cent of total online retail sales in the US has expanded from just 1 per cent in 2000, to 11 per cent in 2019, and has outpaced general retail sales by roughly 15 per cent over the past five years. The pandemic has accelerated this further: Mastercard spending data shows us that since the outbreak of Covid-19, e-commerce represents around 22 per cent of retail sales.
Yet in the US market, the top 10 online retailers account for 60 per cent of e-commerce. Amazon remains the clear leader in this space: it is seven times larger than its nearest competitor, Walmart, and has built a strong distribution system allowing it to successfully fulfil sales for the broad number of units that it sells. On top of this, Amazon is also seeing huge growth in its cloud business, both through its own systems and providing cloud technology to other big tech names such as Netflix.
Resilient financials
While US financials have been out of the limelight this year, we believe there are huge opportunities here, particularly outside of the core banks. While many financial services companies are struggling within the low interest rate environment, technology-enabled companies, such as those in the payments space, are in a strong position to grow.
PayPal is a name that sits at the intersection of both e-commerce and digital payments. For many of us, our first awareness of PayPal is when we’re purchasing items on eBay, but today, PayPal has leveraged its first-mover advantage to become the preferred and trusted payment processor for e-commerce. The brand has also expanded its global reach and has become part of your digital wallet. PayPal is accepted at over 20 million merchants and has over 300 million active users. On the fundamentals side, the company delivers strong organic growth and has very high exposure to e-commerce.
When looking at the US, investors should continue focusing on the long-term and avoid becoming distracted by short term noise.
In our view, rallying sectors such as technology still have got room to run, but it pays to be selective and do your homework. Furthermore, we cannot fully anticipate the long-term impact of the pandemic on the US economy, and so instead we remain focused on individual quality companies that we think can best weather the economic storm.
Timothy Parton is co-manager of the JPMorgan American Investment Trust. The views expressed above are his own and should not be taken as investment advice.