However, fund managers seem confident that an agreement will eventually be reached and the fiscal cliff’s impact on the world’s largest economy will be much less than feared.
In addition,the US economy is one of the few bright spots we can see in the coming year. In particular, the country’s housing market appears to be changing from being seen as the cause of the financial crisis to becoming one of the drivers of a sustainable economic recovery.
Bill Mott, Neil Cumming and Eric Moore from the PSigma Income Fund team
“Economic recovery has been tangible as the year progressed, but we are now facing a nervous period as the main political parties try to agree on a new budget path as the so-called ‘fiscal cliff’ looms.
“Our feeling is that there might not be a clear resolution, but that a ‘fudge’ is likely that will avoid the worst outcome without solving the problem. So US economic recovery will continue but maybe at a slower pace.”
Joanna Shatney, head of US large cap equities at Schroders
“We would not be surprised to see a difficult time for the market in the first quarter if Hurricane Sandy, fiscal cliff concerns and election-hangover cloud fourth quarter 2012 data. However, we expect a positive return over the year.
“Our base case for 2013 is another year of moderate growth in corporate earnings aided by a bounce in some emerging markets and slow, steady economic growth in the US. This will be supported by liquidity and the Fed’s dual mandate, a strong corporate sector, and consumers benefiting from a stronger balance sheet and potentially higher levels of employment.
“What is becoming increasingly clear to those following the US is that the housing market, which has been a drag on growth for a very long time, is on the cusp of turning. We think the benefit of this is significantly under appreciated by investors given the multiplier effects it could have on the economy.”
Ilario Di Bon, head of global equities at Alliance Trust Investments
“The resolution of the ‘fiscal cliff’ issue in the US is a key uncertainty. Assuming that the Congress will reach an agreement to contain short-term expense cuts and tax increases, the US will once again have a chance to lead the world toward recovery – albeit at a moderate pace.
“Encouraging signs on housing and potential vast amounts of shale oil and gas represent two important pillars underpinning an improving outlook for both the consumer and the manufacturing sectors in the US.”
Rebecca Young, manager of the Neptune US Income Fund
“The recovery of the housing market will continue to provide a significant tailwind for the US economy. Pent-up housing demand should support the housing cycle over the next few years.
“Easing measures by global central banks is helping to stimulate economic growth in many regions. This combined with low but steady domestic growth should provide a favourable revenue outlook for US companies.”
