23 Mar 2021
As US equities stand at or near their all-time highs, Cormac Weldon shares three reasons why he still views the asset class as attractive. He explains why for the active manager there is still an abundance of reasonably priced companies with promising prospects.
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US equities are at or near all-time highs as we write. Yet we still see the outlook as attractive. Why? Of several reasons, here are three:
Both in monetary and fiscal terms, the Federal Reserve (the Fed) and the Biden administration are in effect underwriting the US economy. The Fed has acted to limit the economic damage from the pandemic, including up to $2.3 trillion in lending to support households, employers, financial markets and state and local governments. “We are deploying these lending powers to an unprecedented extent and … will continue to use these powers forcefully … until we are confident that we are solidly on the road to recovery,” Jerome Powell, chair of the Fed, said in April 2020.
He’s been as good as his word. On 23 March 2020, the Fed had announced in effect ‘QE4ever’, saying it would buy securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions”. Since then, it’s been buying at least $80 billion in Treasuries and $40 billion in residential and commercial mortgage-backed securities each and every month. Between mid-March and early December of 2020 alone, the Fed’s portfolio of securities held outright grew from $3.9 trillion to $6.6 trillion.
On top of all this, and while keeping interest rates at or near zero, the Fed is still doing more: lending to securities firms, for example. But even the Fed’s powers and tools, impressive though they are, aren’t enough to cope with the economic damage of Covid. That’s why there has also been a fiscal response from Congress and the President, in the form of support for businesses and cheques to every household. Most recently, it looks as if President Biden’s $1.9 trillion American Rescue Plan will bring even more liquidity into the system. And so for equities, as the proverb goes: “When tide comes in, all ships rise.”
Leaving the economy aside, the human cost of Covid is almost unimaginable: almost 550,000 Americans killed, around 10 million more unemployed, businesses and lives devastated. Thankfully, the speed with which effective vaccines have been developed will be an enduring testament to human resourcefulness. The US is leading the world in vaccines administered; and drugmakers have promised to deliver enough shots to vaccinate 130 million Americans by the end of March and 300 million by the end of May. ‘Herd immunity’ is in sight. If that’s right, then large amounts of savings accumulated during the crisis, and ‘pent-up demand’, should see very depressed parts of the US economy return to something like normal again. Forecasts for economic growth in Q4 of this year are very encouraging.
Throughout the crisis, we’ve been impressed by how many companies have responded well: controlling their costs, managing new ways of working and meeting their clients’ needs. Of course it’s the tech giants that have hogged the headlines; but many more conventional companies have also exploited the e-opportunities brought by Covid and stocks seen as dull – railways, for example – will have a crucial part in the recovery of consumption that we expect. So we see opportunities across a wide range of companies – that can.
Of course, there are risks. Inflation is, so far, perhaps surprisingly quiescent. Unexpectedly higher interest rates and rising bond yields would unsettle equities quickly – and, perhaps, upset a booming housing market which is already at 10-year highs. New and more virulent strains of Covid might emerge. Certain sectors and stocks are already quite expensive.
But on balance? As we look for good companies with promising prospects where as we put it the probable ‘up’ is greater than the ‘down’, we find ourselves with an abundance of choice - and competition for a place in the portfolios we manage.
To find out more about the Artemis US Select Fund and Artemis US Smaller Companies Funds and their positioning visit the fund page at www.artemisfunds.com.
THIS INFORMATION IS FOR INVESTMENT PROFESSIONALS ONLY. IT IS NOT FOR USE WITH OR BY PRIVATE INVESTORS.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.
The fund is a sub-fund of Artemis Investment Funds ICVC. For further information, visit www.artemisfunds.com/oeic. Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit www.artemisfunds.com/third-party-data. Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.
Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.
Artemis US Smaller Companies Fund
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.
The fund is a sub-fund of Artemis Investment Funds ICVC. For further information, visit www.artemisfunds.com/oeic. Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit www.artemisfunds.com/third-party-data. Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.
Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.