Is corporate america going to eat all of our lunches?
I intended to write a blog this week on the UK Budget, but there’s really not much to say. It’s almost as if it was written by a Shadow Chancellor who can promise what he wants, knowing he probably won’t be there to deliver it.
Instead I’m going to ask whether perhaps the negative Linchpin view on the United States and its equity market is wrong. As regular readers of this column will know, we think the combination of a sharply tightening Federal Reserve, overstated US earnings growth and a relatively strong dollar is pretty toxic. Let alone President Trump’s willingness to upset his allies and enemies alike in his determination to get a fairer deal for the US on trade and defence.
I am prompted by a conversation I had with a West Coast friend of mine. Two years ago he voted for Trump, while admitting it was a gamble. Today he reckons that the United States is going to eat the rest of the world’s lunch. He sees it as the living proof of capitalism’s success in contrast to regulated and socialist Europe. US companies dominate key industries, and Trump’s policies are providing financial dividends as Europe shares a greater part of the defence burden and China is forced to open up.
He would agree with me that market returns are going to be lower in the next 10 years than they have been in the last but he reckons that the rate of US economic growth, albeit maybe not at 2018’s 4% clip, will be sufficient to deliver reasonable returns to equities.
Part of his argument is what he sees as the failure of other economies to follow the successful model of the US. We might disagree exactly what success means but no-one can deny that the large US companies are leaps ahead in terms of global reach.
I still believe that the recent setback is not yet the ‘big one’ which we – because of such a poor financial environment – believe is inevitable. I continue to think that over-aggressive tightening by the Federal Reserve is likely to be the catalyst. But I will admit that my conviction has weakened.
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