While fund selectors continue to bang the virtues of the stock-picking drum, it is economists and strategists that hold sway with regards to wading through some of the biggest investment influences of the moment.
Listening to debates among fund managers and fund selectors is always fascinating as the two sides of the same fence debate the best way to manage their way through an increasingly complicated investment backdrop.
This backdrop is the same for both, with neither group ready, able or willing to argue against, for example, the fact that the US economy is slowing down. Its GDP grew by an annualised rate of 0.5% during the first three months of the year, its slowest pace of growth in two years and just half of the 1% GDP growth rate in the final quarter of last year.
Nor can anyone argue that this stalling economy is, however, creating jobs – 630,000 of them during Q1 with net job gains of 209,000. Unemployment dropped under 5% in January despite the market wobbles and the outlook for employment is expected to continue to be positive.
What this does do is push back any talks of the possibility of recession back at least 18 months, according to Samantha Azzarello, a global market strategist at JP Morgan Asset Management. Other expert commentators are also talking about Janet Yellen, as chair of the Federal Reserve, keeping interest rates at the rate she raised them to in December last year for some time.
Cormac Weldon, manager of the Artemis US Extended Alpha Fund, one of the best performing US equity funds in recent times, describes the market rally into March as being led by a recovery in the industrial areas of the economy, principally the IT and finance sectors.
Weldon said: “It is likely the cyclical rebound in the industrial economy will continue in the short term. However, forecasts for GDP fell in the month [March] due to a slowdown in real estate and consumer spending. Under the burden of tighter monetary policy for the next 18 months, this is likely to persist.”
There are plenty of other problems in the US – spending is an issue at both a corporate and a household level, with household spending growing by less than 2% down from nearly 2.5% in the previous three months. At the same time, business investment fell by 6%.
Another area of concern is inflation that dropped from 1.37% in January to 1.2% in February before finishing March at 0.85%. This follows negative inflation rates each month from May to December last year.
The US is likely to remain as it is now – low growth, low inflation, low interest rates – which is a positive thing. Essentially, Yellen was able to put up interest rates last December as a vote of confidence in the US economy and the factors that contributed to this remain in place four months later.
