The outlook for US corporates and the US economy

Key points

  • US corporates remain in good shape. September quarter earnings season was better than expected and the outlook for US earnings is solid.

  • But US business investment growth is likely to remain low in 2020 because of trade uncertainty and the election.

  • We are not concerned about the build-up in US corporate debt given that asset prices have increased in line with debt, earnings momentum is positive and there has been no deterioration in lending standards.

  • A positive backdrop for US corporates, a slow improvement in global manufacturing and an easing in the US dollar is a supportive environment for shares.

Implications for investors

  • US corporate earnings growth has weakened over the past year but still remains positive and should improve in 2020.

  • While trade uncertainty is weighing on capital expenditure, the labour market remains strong, wages growth is rising and interest rate cuts from the US Fed are supporting the economy.

  • Global growth is bottoming out and we expect a slow recovery in manufacturing activity which will be positive for cyclical stocks.

  • This environment is positive for US corporates and shares in return. We see global share markets tracking higher over the next 6-12 months.

  • Bond yields are also likely to edge a little higher in this environment of improving cyclical growth.

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