A US economy that is ‘warming up nicely’ could power equity markets to new highs despite the realities of an embattled Trump administration, according to Scott Jamieson, head of multi-asset investing at Kames Capital.
Following a winter in which consumer and corporate sentiment rose due to the reflationary potential of Trump’s pro-growth policies, Jamieson says confidence might have dipped amid a turbulent first few weeks in office for the US president.
However, Jamieson says sentiment, as measured by the US ‘Beige’ book – a compendium of surveys from 12 regional reserve banks on activity and conditions in their areas – has shown more resilience than might have been expected.
“The broad based rise in consumer and corporate confidence over the winter had a lot to do with the reflationary promise of Trump’s policies,” he says.
“The reality since Trump’s inauguration has been that of an embattled Administration, but we are now getting sentiment surveys for February which begin to capture the realities of the Trump Presidency. Although sentiment could easily have taken a knock, there is no evidence yet of any downtick in either the manufacturing or non-manufacturing surveys.”
Moreover, Jamieson points out that consumer spending, far from falling, has remained relatively robust. “US consumers, at least those polled by Bloomberg about how comfortable they feel, remain upbeat – and they are expressing this through higher personal spending, albeit that the lift in such spending in January was less than expected,” he says.
Jamieson says highlights in the Beige Book, which broadly suggest that improvement in conditions are ongoing, include an economy that ‘expanded at a modest to moderate pace’; increased retail sales; higher auto sales in most Districts; ‘mostly stronger’ tourism; manufacturing activity that has ‘accelerated somewhat’; growth in the energy sector; expanding home construction and sales; steady-to-up home prices; and business confidence that is ‘generally optimistic about the near-term’.
It also points out that employment grew moderately in most of the US, with a number of Districts noting that staffing firms were seeing brisk business for this time of year.
“The Beige Book reflects a US economy which may not be firing on all cylinders but is warming up nicely,” says Jamieson. “If companies start to act with the confidence they say they feel then the next report should be bound in a much more vibrant colour.”