With a year to go until the next US presidential elections, it does not seem too early to start thinking on what the election means for investors and its impact on the US stock market.
In this interview, Eugenia Jiménez talks with Joe Little, global chief strategy of HSBC Asset Management, about the challenges and/or opportunities that US equities might bring in the next 12 months.
How likely do you think that US stocks will perform well over the coming election year?
Our scenario for 2020 is for tepid growth in US GDP and profits. Importantly US equities remain attractively priced relative to US credits or bonds."
The lesson from history is that US stocks tend to perform well during presidential or congressional election years versus those years without elections. Looking-forward, the performance of US stocks is going to reflect trends in corporate profits and relative valuations - and we would be cautiously optimistic.
All year in 2019 analysts have feared a US profits recession. For sure, we have seen some weaker corporate data, but we think macro trends continue to point to a "cyclical slowdown", rather than anything worse.
Our scenario for 2020 is for tepid growth in US GDP and profits. Importantly US equities remain attractively priced relative to US credits or bonds.
How likely do you think leading indicators such as the inverting of the yield curve will actually be followed by a recession in the US in the coming year?
We are very skeptical about the economic signal from the yield curve. The US yield curve reflects a short-end which is determined largely by Fed policy and a long-end which is heavily influenced by global factors. That means that the shape of the US curve doesn't tell us that much about US macro trends.
Shorter term yield spreads might be more useful metrics, but even then these measures are a "mirror" on market interest rate expectations, rather than a reliable leading economic indicator.
More recently, we have seen a de-inversion and quite a flat US yield curve. That seems right because our macro scenario is a "cyclical slowdown", rather than a worse outcome for growth.
Are you re-assessing your US/North America exposure? If so, why?
It's important to be active in our asset allocation, so we are constantly re-assessing our investment views based on how market prices and valuations are evolving, and with a focus on the incoming macro and political news.
At present, we are watching a number of fundamental trends very closely. We would highlight the most important as: (i) the data around US corporate profits, (ii) the strength of the US consumer and the resilience of US labour markets, and (iii) the outlook for Fed policy and its implications for the dollar. These themes are likely to be very important for US asset classes as we move into 2020.