US Economy bottomed in 2nd quarter
The upbeat overnight US economic data is a welcome development. While the US recovery is not synchronised in every sector, I think the economy has bottomed early in the second quarter and should improve from here. From a policy and a markets perspective the key question is how strong the recovery will be. Market expectations to me are too optimistic, but with labour market gains continuing at a solid pace and real income progressively moving higher, consumer spending should boost growth in the second half of 2015, which will bring the US Fed out late in the period. While the US is looking better, the real growth improvements over the next 12 months are likely to come from Europe and to a lesser extent Japan and these will be needed as the valuation expansion is close to its completion which means that earnings growth is needed to give the market its next leg up. That leg is going to be more volatile than what has been seen in recent years and stock selection is going to remain key.
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