H1 2016 Outlook: US Equities

  • 29 Dec 2015
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    Looking towards 2016, what can we expect for US equities? We should expect a continuation of the positive economic backdrop that we’ve seen this year and the previous year. The labour market is strong, and the housing market continues to be strong – which is positive for consumers. So we should eventually see a broad-based recovery for consumers that we’ve been waiting for these past two years. For corporates, some headwinds should lift – we’ve seen a strong dollar these last two years, and that should ease off. But what we might see are rising wages, which is going to impact the profitability of US corporates, and is something to watch out for. Having said that, we’ve seen a lot of deals; a lot of these companies are cash rich, and we’ve seen $4 trillion of deals so far this year. We should expect a continuation of this trend into next year. This will support the market.

    We’re seeing a clear dichotomy in what’s happening in the market, with the service sector and consumer-related stocks doing quite well, versus the industrial sector, which is struggling a bit. On that note, we’re still very cautious on the energy sector, and we’d want to see some normalisation of the oil price before we increase our exposure to this sector. Financials on the other hand could be interesting in a rising rates environment, and here valuations are interesting. I talked about the positive consumer story, so some consumer stocks could be interesting into next year as well. You should be wary of valuations and be very stock specific as some of these evaluations are already anticipating some good news. We still see a lot of opportunities in the technology sector, driven by innovation. The US is still very much the leader in innovation, and this will continue to drive M&A activity. There are a lot of investment opportunities for us in technology.