The U.S. GDP grew by another 4.1%, setting a record high for the past few years. Both, the President and Congress, are pleased with these results, attributing the success to their policies. But is this growth sustainable, or should we anticipate a significant decline following this record rise?
Experts believe that the future success of the U.S. economy hinges on several factors:
- maintaining inflation at current levels;
- reducing national unemployment;
- increasing consumer spending;
- raising wages.
However, certain factors could negatively impact the U.S. economy. The rising interest rates on loans play a significant role, primarily due to the Federal Reserve’s ongoing increases in the key rate. This situation has led to a substantial financial burden on a portion of the U.S. population, resulting in reduced spending.
Conversely, conditions in the U.S. labour market are highly favourable. The country enjoys a record-low unemployment rate and a substantial supply of jobs, providing many opportunities for employment.
This abundance of job vacancies suggests that individuals can not only find employment but also change jobs if their current position is unsatisfactory. Consequently, consumer spending has remained relatively high, as Americans prefer to adapt rather than cut their expenditures.
The second quarter generated strong GDP growth, largely driven by goods exports. In the U.S., there is speculation that import duties may soon be increased, prompting companies to operate non-stop to supply goods. Although export growth today is not the sole determinant of overall growth, it is still significant enough to be acknowledged.
At the same time, President Trump is pursuing an active foreign trade policy, pressuring countries with the threat of trade wars to increase their imports from the U.S., thereby boosting economic power. The president’s administration has implemented a favourable tax policy for residents, and global monetary policy attracts investors from around the world, supporting the country’s production.
Currently, we can see an increase in the production capacity of the entire U.S. industrial sector, which yields excellent results amidst rising domestic demand. Market experts believe the U.S. economy will continue to grow and strengthen over the next few quarters. According to analysts, 2019 will see the U.S. achieve a GDP growth rate of around 2-2.5%.
Is it time to invest?
Today, conditions are optimal for investors in the United States. Do not miss the chance to buy profitable securities at affordable prices. This is partly due to the fact that the S&P 500 index has not yet fully reflected the changes in the American economy and remains at a fixed level. Typically, this index yields at least 4-5% growth for each percentage increase in GDP. Considering the current GDP indicator suggests the index should have increased by 11-12%, the slowdown presents an opportunity for investors to act swiftly.
It is also important to note that the country’s economic growth has been most significantly reflected in energy companies, healthcare sales, and the financial sector. On average, these sectors have seen gains of 5-7%, unlike other industrial sectors.
Additionally, the likelihood of continued economic growth should be considered. As the economy grows, the value of securities will systematically increase. Several factors support the expectation that the situation will unfold this way.
The first is progress in relations with China. Trump has been tough and focused, setting limits that other countries are obliged to fulfil. Through his actions, he has secured a number of trade concessions beneficial to the U.S. economy. The EU has decided to waive import duties on American-made cars, and there are plans to increase exports of gas and soybeans from America. This is the reason why the S&P 500 index is up 3.5% in just one month.
All of this suggests that America is not so inflexible in its aspirations. It is possible to gain concessions from the president, but it requires a willingness to make some compromises.
This is evidenced by the fact that some agreements have been reached in negotiations with China, even though the final resolution of the conflict is still quite far away. Despite this, there are positive dynamics, which means that investors can hope for stabilisation and improvement of the situation. It should be noted that in this context, the S&P 500 index is growing.
The companies are showing good results at the end of the financial quarter. Of course, not all of them managed to end the period successfully. Facebook and Twitter were somewhat inferior in their indicators, but other giants showed excellent capital growth and strengthened their positions in the market. Thus, we can expect a number of financial indices to continue to rise.
What else to look out for?
In addition to the industrial giants, it’s worth noting the strong performance in more traditional investment sectors, which are also thriving. This particularly applies to the financial sector and the consumer goods industry, which have shown robust growth of about 4-5% over the past few months. These figures provide a compelling reason to consider adding securities from these sectors to your investment portfolio, with expected returns spanning 1-2 years.
The high employment rate, income, and consumer spending are driving growth in the basic consumer goods production sector. Major companies like Coca-Cola, Procter & Gamble, and Colgate-Palmolive are particularly attractive to investors. Technologies are developing just as actively, ensuring good profitability for the shares of corresponding companies. After a slight slowdown in the sector’s growth last year, companies are now picking up pace again. Amazon, Netflix, and Google are showing strong results, having already demonstrated record growth and continuing to impress investors.
Despite prevailing conditions, companies in the energy and technology sectors are anticipating growth rates of at least 25%, which could overshadow global market instability.
Banking investment
The situation is also expected to improve for banks. The Federal Reserve will stabilize the situation with the key rate, although it is certainly impossible to restrain its growth against the backdrop of improving economic indicators. Despite Trump’s active stance and his assertions that rate hikes harm the U.S., the central bank will take necessary actions.
However, when choosing to invest in the banking sector, one must not overlook the serious issue of U.S. trade relations with China. While initial steps towards reconciliation have been taken, the situation remains unresolved, potentially leading to a downturn in the country’s banks’ stock prices shortly.
Currently, two giants in constant competition dominate the U.S. market: Morgan Stanley and Goldman Sachs. Interestingly, no clear leader has emerged between them. Bank revenues are growing at approximately the same rate — 19% versus 12% for the quarter.
They also demonstrate strong performances in the securities market, with Goldman Sachs excelling in debt bonds and Morgan Stanley enjoying increased demand for shares.
Several other U.S. banks did not show such outstanding results, but nevertheless, the majority maintained positive momentum and reported profit growth, albeit modest. Some sector members were particularly affected solely due to international relations. Banks focused on international economic activities were the first to suffer from U.S. trade disputes and sanctions imposed by the country.
So, is it worth investing in US banks? The prolonged standoff between the United States and China is exerting influence, including on the banking sector. However, some banks are less dependent on political disputes and maintain high investment attractiveness. Surprisingly, when comparing performance indicators between the country’s largest central banks and smaller regional ones, the latter come out ahead. Small sector representatives saw an average 6% increase in indices, as evidenced by recent quarterly reports.
Continued relaxations in tax and monetary policies have fostered the banking sector’s growth, enhancing their investment appeal. Trump’s policies are notably geared towards supporting smaller sector players, which already yields visible advantages for them.
Overall, investors should take heed of the US banking system. Financial reports indicate that bank profit growth has surpassed experts’ expectations, averaging 5% across the industry. Consequently, similar robust results are anticipated in the upcoming quarter. Nonetheless, close monitoring of unfolding political developments remains prudent, as the system’s future trajectory hinges significantly on these factors.
Financial statements in the US: can they surprise investors?
Before deciding to invest in a company, it is crucial to examine its financial statements thoroughly. In the US, the end of the year marks the time for financial quarterly reports, which is anticipated to be significant. American companies have previously delivered remarkable results, and as 2018 draws to a close, the market is once again eagerly awaiting potential surprises. Despite ongoing trade wars with China and tensions with Russia and the EU, investors remain hopeful for positive outcomes. Moreover, pressure from America on the market is not subsiding.
Investors anticipate that positive trends in international relations will persist, keeping trade issues open. And if American companies manage to demonstrate remarkable profit growth, the situation could be viewed entirely positively.
Growth of at least 20% is expected. If these expectations are met, the market will experience a surge of new deals.
In the American economy, conditions for investment have currently shaped up favourably. However, approaching this matter requires sufficient attention and caution. Despite all positive expectations for future development, it is advisable not to spread investments too thinly across all areas at once. With the onset of a new season, the situation could change significantly, so it is prudent to anticipate all possibilities in advance.