There are two main things that have changed over the last few months, which affect markets and should be noticed by investors. James Swanson, Chief Investment Strategist at MFS Investment Management, discusses them in his latest video and blog:
- U.S. corporate profits and margins keep rising even if everyone predicted they had to revert to its mean. Corporations are growing in all types of environments, as in the U.S the first quarter of this year saw a drop, whereas the second one grew swiftly, and in both quarters margins and profits kept rising. Swanson numbers a series of reasons for this: U.S low relative labor costs, low energy costs, more effective use of resources, low interest rates and some financial engineering via share buybacks.
- The direction of the U.S. economy, which seems to be accelerating, is different to the rest of the world. Meanwhile, Europe is heading towards its second recession, Japan is experimenting with totally new policies with an unknown outcome, and China is not growing at the same pace we are used to. The U.S. economy, according to Swanson, is benefiting from a pick up in car sales, a slightly better home market, better exports, factory production and growth in the service industry.
For investors, this has two implications: on one hand, slower growth in the rest of the world suggests that interest rates in the U.S. could stay low for a longer period of time. On the other hand, as stressed by Swanson, the resilience in margins and profits for U.S. corporations imply that investors can still find value in the U.S. equity market.
You can visit James Swanson’s investment blog “On the Lookout” thrugh this link.