The US economy is improving steadily with GDP growth at approximately 2.5%, wages growing at 2%+ and the unemployment rate close to 5%, which I would deem close to full employment. The strong US Dollar is dampening inflation and weighing down export growth and tourism which is affecting retail sales in tourist areas like New York. Despite this, the economy continues to grow with lending improving, driven mostly by the commercial sector. We still expect another one or two rate rises in the US this year. Interestingly, history tells us that the S&P 500 can still advance in the face of rising rates. After the initial rate hikes of 1994, 1999 and 2004, the S&P500 averaged a gain of 6% in the succeeding 12 months. We are overweight in US financial and technology stocks and expect them to perform well over the coming few years. As a value investor, we’re still finding plenty of undervalued companies in these sectors and think that too many people are hiding in over-priced consumer staples companies. (VIEW LINK)
Perpetual Limited is an independent and diversified financial services group providing specialised investment management, wealth advice and corporate fiduciary services to individuals, families, financial advisers and institutions.