The US between disappointment and hope

31 July 2014

“We are relatively optimistic on the prospects of American companies and on the overall economic trend in general; the present economic phase is one of growth, but the growth rate is not so fast as to raise strong concerns over interest rates, at least not in the short term.” These were the words of Michele Gesualdi of the Kairos management team while discussing the US economic and market outlook.

“In an environment of moderate growth and still plentiful liquidity all risky assets, and particularly equities, continue to perform well,” he continued. “This situation can be expected to remain unchanged until there is a rise in inflation or a slowdown driven by external factors.  While positive, however, an equilibrium of this kind is relatively fragile, and may be subject to change in the short term”.

Moreover, added Gesualdi, it should be considered that the performances of the last few months have been partly disappointing. “Following a very harsh winter, which significantly impacted economic activities, a stronger recovery was expected, particularly in the real estate sector.  The weakness of the housing market suggests that the structural dynamics to be taken into consideration at this time are related more to personal behaviours than to cyclic phenomena. Not coincidentally, some managers have reduced portfolio exposure to this sector.”

The consumption front has also been disappointing, while positive signs have emerged from the transports, manufacturing and engineering industries, supported by the onshoring trend (i.e. the return of production to the western countries) and by production costs that are now much lower than in other Countries.

Looking forward – In Gesualdi’s opinion, some adjustments and a very low level of volatility are part of the second phase of the bull market, which is likely to continue for a few more years. “We expect,” he concluded “a less bullish market and frequent sector rotation, but the trend should be generally positive, with individual securities, M&A activity and special situations making the difference and resulting in the generation of alpha in hedge funds and active funds in general”.