Vroom! 3 reasons American growth can keep going

The mainstream press is usually a torrent of bad news when it comes to markets.

There’s always a looming recession on the horizon, trouble somewhere on the ASX or a property bear to quote and scare everyone.

Today’s piece is a counterpunch to all that.

It’s a tough market, no doubt. But bulls can take some heart.

Here’s 3 reasons why…

1) SOMEBODY FOUND A SPARE TRILLION DOLLARS

After all, did you see THIS news?

The Economist reported on Nov 2 one of the most extraordinary statistics I’ve seen for a long time.

Here’s the direct quote:

‘Consumer spending has been supported by the excess savings households built up thanks to the lockdowns and stimulus payments of the covid-19 pandemic…

‘These protective buffers will last for a while yet.

‘In September statisticians revised up the estimate of savings accumulated during the pandemic, which had previously looked like they were on the verge of exhaustion.

‘It now appears that America’s households are still sitting on about $1trn of excess cash, equal to nearly 5% of annual personal income in aggregate.’

Come again?

You’re telling me that somehow the statisticians behind this stuff missed ONE TRILLION DOLLARS??

That seems insane.

However, all you and I need to know is that no wonder US consumer spending keeps surprising to the upside.

If you’re waiting for the American economy to go into a “hard landing”, you now have strong cause to doubt that conclusion.

The American economy is more robust than most people assume. Now we know a big reason why too.

2) TAX CUTS, TAX CUTS, TAX CUTS

Everybody in the market will remember the electrifying effect that Trump had on stocks when he slashed the US corporate tax rate in 2017.

That was a long time ago now, and the effect has long faded away.

But tax policies are important.

The Economist comes in handy again here.

This month the team there reported that the majority of the 50 American states are cutting taxes (mostly income) for their constituents.

This trend came into effect since about 2021 and looks set to keep going.

How so?

The strong US economy is giving US state budgets fiscal surpluses that allow them to fund these tax cuts – at least in the short term.

Hello!

Like the first point above, again we have another important, but obscure factor working in the favour of the US consumer.

This sector drives 70% of American GDP.

What’s good for the average American should be good for markets.

Let’s not forget Australia. The long awaited Stage 3 tax cuts are due to come in next financial year.

That’s not much more than 7 months away now.

This will be welcome relief for the pressed Aussie consumers that benefit and allow many to offset some of the recent rate rises.

It’s possible – but not certain – that the RBA’s cutting cycle could begin around the same time as these tax cuts come in.

Now that would give the market a lift indeed!

3) US$100 OIL? I DON’T THINK SO

Take a look around the world. We have war in Ukraine.

We have conflict in the Middle East. We have an American economy surprising to the upside.

What is oil doing?

Oil is going down since the Hamas attack in Israel rattled the sector. It’s at a 3 month low.

And if all the above can’t lift it to US$100 a barrel, it’s not clear to me what will, absent a wildcard.

Here’s a clue to what’s causing oil to sell off.

Gasoline margins in the USA are barely profitable, if at all, for the refiners that bid and process crude oil.

Suddenly the US is awash with the stuff.

Cheap “gas” for Americans is another bullish kick to American spending.

It’s possible crude oil gets even cheaper still.

After all, the central banks are tightening to slow the economy down.

Low oil prices after 2014 helped kick off the long expansion for the US economy into 2020.

We might be in for a similar tailwind – against expectations.

So there you go.

Three reasons why American growth can keep lifting global markets – including Australia and the ASX.

Best wishes

Callum Newman 

Editor, Australian Small Cap Investigator