[wikinvestchart ticker="SPY" range="recent" rolling="1 day" height="245" width="300" live_quote="true" annotations="false"]
I asked Paul Dietrich, managing director of Foxhall Capital Management in Orange, Conn. to come up with some reasons why the US stock market can go higher in the second half. Dietrich is an international investor, so he likes the big multinationals with exposure to the emerging market powerhouses Brazil, India and China.
Here's what Dietrich thinks the top five long term fundamental drivers are in the current stock market. These aren't tradeable "talking points" for someone looking to get in and out of the market, but are some reasons to consider going long equities.
1. US company fundamentals are improving in almost every area. Manufacturing is rebounding at a 15% annualized rate over the past 3 months. S&P 500 companies are now holding a record $1.1 trillion in cash. This cash has the potential to add a lot of momentum to the markets and to the economy in the form of increased dividends, share buybacks, mergers and acquisitions activity and capital expenditures.
2. US state and local tax revenue rose 4.7% in the first quarter, which is he sixth straight quarter of growth and a good sign the economy is mending. I use tax revenue growth as a leading economic indicator of the direction of the economy.
3. All of the long-term economic trends are positive and solidly in place. Yes, the US economic recovery is mediocre, but the US economy is still growing and there is almost no chance, short of some unforeseen economic disaster, that could cause the US to slip back into a double-dip recession.
4. Asian economies are slowing and this is very good news. This means that Asian Central Bank policies are working. Asian Central Banks have been raising interest rates for over a year in an effort to slow Asia’s unsustainable growth rates to a more sustainable 6% to 9% growth rate. These policies are working and many Central Banks are signaling that they will stop raising rates over the coming months. When this happens, I believe Asian and emerging stock markets will take off.
5. Commodities are still in a 10-year to 15-year long-term bull market. Even if underlying economies like China are trying to reduce their growth rate from 12% to 9%, that doesn’t necessarily signal a slow down in their buying commodities. The vast majority of commodity buying is by Asian governments as they are building long-term infrastructure projects like super highways, power plants, airports and new electrical grids. These projects also provide jobs, so they are unlikely to slow even if the overall local private sector economy is slowing. Many Asian governments have large surpluses to pay for these massive infrastructure projects. I believe commodities will continue to be in demand and continue to rise over the long-term.
Also Read
2 comments