J. P. Morgan Asset Management's US Equity Income Fund portfolio manager, Clare Hart is forecasting that the US will continue to experience sub-trend growth over the next one to two years, but that a recession will be avoided.
Whether or not the US avoids recession will, however, depend on the eurozone. “The strength of corporate balance sheets, and the fact that the cyclical areas of the economy remain depressed, are the reasons we believe a recession can be avoided. However, the risk of recession would greatly increase if the situation in Europe were to deteriorate further."
Hart warns that despite increasingly attractive valuations, it is questionable whether markets will remain patient. “It is equally questionable whether all European constituents can actually agree on steps that will convince markets that their policy is finally ahead of the curve.”
She believes the coming weeks will be critical as investors expect the IMF’s communication to be followed by action. “A successful resolution to the European crisis would most certainly bode well for a healthy rebalancing into equities.”
Looking at the US market specifically, Hart points to the turn in sentiment led US equity markets which rallied sharply in the fourth quarter of 2011, and which allowed the S&P 500 to finish the year in positive territory. “Because of this, the US was one of the best performing markets, having outperformed the MSCI World (ex-US) Index, as well as emerging markets, during the quarter.”
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