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Newsletter 16

18 Nov 2019

US Economy is Booming

Last week the Dow Jones broke through the 28,000 mark for the first time. Similarly, the S&P 500 index is now at the 3,100 level with talk of it reaching 3,200 by Christmas.

From my previous visits to the US it is apparent the US economy is booming with the usual tell tail signs of strong business activity, e.g. cranes across skylines, lots of home building and restaurants full on Monday and Tuesday nights, not just the back end week and weekend nights. Despite this, only 2 months ago many commentators were predicting a recession shortly with a major equity market correction.

The US Presidential election cycle is in full swing with less than 12 months to go. For Trump to be re-elected the economy must be going well and this is why he is pressurising the US Federal Reserve to lower them again and he also wants a trade deal with China that will help drive growth through increasing exports. The Chinese may be happy to wait until after the election and possibly deal with a new President.

US fund managers are yield (income) hungry and some of the fixed income managers we have been speaking with advise that this calendar year returns may be very low or negative. One reputable manager with more than 20 years fixed income experience advised that this calendar year returns will likely be negative. This is only the  2nd time in their history of negative returns.

Our investment strategy that Australia is a yield play and growth comes from the international equity markets and themes, e.g. Robotics, Battery, Cybersecurity, etc. continues to prove to be the right play.

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