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SUMMARY
- US economy more productive than international peers, according to current real GDP per worker figures.
- US GDP growth remains robust, which we think bodes well for corporate earnings.
- We remain optimistic on US stocks.
In today’s Weekly View, we created a concise synopsis of three selected visuals from our April 2024 Chart Pack. Q1 represented a strong start to 2024 for stocks, reflecting solid corporate earnings trends. Thus far, the start of the year has exceeded our expectations, but there’s still a lot of time left in the year for a few scares. There’s plenty of things for nervous people to worry about in ‘24: Fed policy uncertainty, a contentious Presidential election, a weak Chinese economy, and an equity rally with ‘narrow’ leadership.
We do not lightly dismiss these near-term concerns. On the contrary, if the market follows a typical Presidential election year pattern, the first half of 2024 is likely to be choppy and volatile before eventually resolving to the upside later in the year. However, even incorporating all these risks, we remain optimistic on US stocks. This view is due in large part to the resiliency of the US corporate sector, which we expect to generate positive earnings growth again this year, as well as positive election year historical patterns. Our asset allocation portfolios are overweight stocks, with an emphasis on the US.
We believe there is strong evidence of what we call ‘American economic exceptionalism’. This refers to our view that the US economy is structurally more robust and resilient than its’ developed world peers. Chart 1 (above) measuring real GDP per hour worked, suggests that US productivity has been on the rise for decades, and seems to have accelerated on a relative basis since the pandemic.
The US economy continues to defy the naysayers, with Q1 GDP projected to be above 2%, according to the Atlanta Fed’s ‘GDPNow’ forecasting model. The US economy – the world’s largest - is 11% larger today than it was in 2019. Meanwhile, Germany and Japan’s economies are essentially the same size as pre-pandemic, and France and the UK are only marginally bigger.
For US stocks, being connected to a more productive, growing economy has myriad benefits… not least of which is the strong long-term correlation between US GDP growth and corporate earnings growth. While interest rates are a powerful driver of near-to-intermediate term stock sentiment and valuations, in our view corporate earnings are the more durable longer-term driver of a stock market’s returns (see our 2024 Outlook for more on this topic). Our Outlook calls for corporate earnings to be stronger than consensus believes in 2024.
Risk Discussion: All investments in securities, including the strategies discussed above, include a risk of loss of principal (invested amount) and any profits that have not been realized. Markets fluctuate substantially over time, and have experienced increased volatility in recent years due to global and domestic economic events. Performance of any investment is not guaranteed. In a rising interest rate environment, the value of fixed-income securities generally declines. Diversification does not guarantee a profit or protect against a loss. Investments in international and emerging markets securities include exposure to risks such as currency fluctuations, foreign taxes and regulations, and the potential for illiquid markets and political instability. Please see the end of this publication for more disclosures.