There is increasing confidence that no further interest rate rises in the US are the pipeline, crea...
There is increasing confidence that no further interest rate rises in the US are the pipeline, creating more positive sentiment towards US equities.
The Federal Funds target rate stands at 6.5% following six increases over the past year and many believe it will remain at that level until after the US presidential elections.
Hargreaves Lansdown is optimistic about US equities and does not expect further interest rate rises during 2000 providing inflation remains in check and the new US president does nothing to damage the economy.
Lee Gardhouse, fund manager on the Hargreaves Lansdown Growth Portfolio, says: "Our expectation is we will see rates move ahead over the next year or so.
"We do not think that all the pressure has been taken out of the US economy on the unemployment front which is historically very low at around 4%.
"But productivity growth has been strong which has offset the rise in wages so far and not shown through strongly in inflation figures."
Gardhouse is expecting double-digit growth in earnings per share over the next 12 months, possibly as high as 12%.
The Hargreaves Lansdown Growth Portfolio has 26% of total assets in North America.
He says: "One of the reasons for the general underweight position of our competitors is many investors gave up on the US three or four years ago and have never been able to buy back in."
Gardhouse's view is broadly supported by Martin Clements, director, asset allocation at Royal & Sun Alliance.
Clements, fund manager for Royal & SunAlliance Managed, says: "We have scaled back our expectations for interest rates in recent months, a process which we began before most of the crowd.
"It is a fine balance between no new rise and a rise of 25 basis points.
"We are seeing pretty strong growth and that seems to be supported by increased productivity and not coming through by way of inflation. If data emerges that this fine balance has changed then we might expect further rises.
"The stance we are taking is more optimistic on equities in general and the US in particular. We have been revising up our market forecasts for the US and are overweight in the US relative to our peers."
Bob Yerbury, chief investment officer at Perpetual, expects interest rates to remain flat for a period and says only a severe external shock would see them rise again.
Despite the optimistic view, Yerbury says: "We prefer the UK and Europe to the US over the next 12 months.
"The reason being that in the UK interest rates are closer to their peak and could come down next year.
"In Europe there is good liquidity and growth looks buoyant even as interest rates are going up.
"From a valuation point of view the US, aside from technology, is not more expensive than Europe or the UK, however, it is a question of whether those other areas are going to perform sufficiently well to drive the market and I would play those themes in the UK and Europe."
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