Hugh Grieves, Premier Miton US Opportunities Fund Manager, shares his expectations (with one caveat).
Making predictions about the future is really hard. Making predictions about the future with Trump? Well, it goes without saying that everything I say now I reserve the right to change at some point in the future.
However, overall looking out to the next 12 months, we are confident things are looking good for investments in the US. Especially when you look around the rest of the world, the US looks like a shining light of growth and health compared to other markets – even with the uncertainty of having Donald Trump as President.
The caveat is that it is not going to be a straight line. With Donald Trump there are going to be bumps in the road and scary moments, and we have to bear that in mind. Those could be buying opportunities because they could turn out to be not as scary as they seem at the time. But it’s not going to be the easiest ride, as we found out eight years ago.
I don’t want to paint a picture that everything is going to be hunky-dory forever. There will be moments where we might worry, whether it’s about Trump or it’s about inflation or something else that comes out of the blue.
It’s been the case for some time that the US has been a strong performer, it’s been attracting more and more capital and people have very high allocations to the US. This is a huge contrast to 20 years ago, even 10 years ago, where people pretty much ignored the US because it was too expensive and they wanted to put money into emerging markets and Eastern Europe, for example.
I don’t see this trend changing, though. Expectations are lower for the rest of the world.
We will get a pull-back at some point and people will get a shock, but we expect that to present potential buying opportunities.
The Magnificent 7 has been a big driver of the S&P 500 Index this year, helped by enthusiasm around AI, and (as at 18 December) now make up an enormous 34% of the entire index. However, there are cracks starting to appear in the AI story as investors question whether the huge investment being made by these companies will ever pay off and deliver the profits that the share prices of these companies anticipate. We are avoiding these companies as we worry that the rewards are not justified by the risk.
I’ve been bullish on the US economy anyway, since before Trump came in. There are three reasons for that.
One is that consumers are under-levered. They’ve got room to take on quite a lot of extra debt if they choose to. They haven’t chosen to recently because of fears about recession, interest rates, joblessness etc, but consumer confidence is ticking up and if consumers choose to take on more debt that’s going to be a big tailwind to the economy.
The housing market in terms of turnover has been flat on its back for the last few years. It’s been at 2008 levels of turnover. As we all know, the housing market has a big multiplier effect. If you sell your house, you redecorate it. If someone buys your house, they redecorate it, and they buy some furniture, update the kitchen… there is a boost to the economy. The housing market could be another tailwind in 2025.
Manufacturing, which is a cyclical sector, has also been flat on its back. There are signs of life in the manufacturing sector in the US now, though. My colleague Alex Knox and I were at a manufacturing conference in Chicago not long ago and people were talking about green shoots, order books being up. I think with the election out of the way there has been an element of pent-up demand. People were not wanting to commit to big projects ahead of the election not knowing what the tax situation was going to be. Well, now we have certainty.
Overall, the economy has capacity to expand and if we get to 3% GDP growth that will be a great backdrop to earnings growth. Part of the reason the market has been so strong recently has been the expectations of earnings growth. The risk is inflation comes up if tariffs come in or the economy is accelerated above its natural rate. If next year’s the party, when will we get the hangover?
What is Trump going to do? There are three things we can expect he will focus on. Immigration, trade and tariffs and the US economy in general.
Immigration is clearly a biggie; they’re going to do something. At the moment, if you’re born in the US to parents of illegal immigrants, you are American. Trump’s talking about revoking it and he can do that.
Eight years ago, when he came in, it was all about reform of Obamacare and it got nowhere. I don’t think he will do that again. Immigration policy, on the other hand, he will be able to change.
Linked to this is trade and tariffs – especially tariffs against Mexico and Canada – and that’s going to potentially upset people. He doesn’t like China, and tariffs are probably going to go up, but that’s not the big deal it was eight years ago. Eight years ago, American companies had lots of manufacturing in China for export to the US. That is no longer the case. Supply chains have reformed since tariffs of eight years ago, a result of Covid and Russia/Ukraine and China/Taiwan. Manufacturing has moved or even come onshore.
The new Treasury secretary has promised three threes: 3% GDP growth, to cut the budget deficit by 3% by 2028, and an extra 3 billion barrels a day in US oil production – so, taking US oil production from 13 billion to 16 billion. The US is already oil’s biggest producer ahead of Saudi Arabia. Could it go to 16 billion? In theory there is room. On GDP growth, we are already at 2.7% – bumping it up to 3% may be possible. Any idea that Trump might be fiscally responsible is a good thing, but we’ll see.
Risks:
The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.
Forecasts are not reliable indicators of future returns.
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