The outlook for US corporates and the US economy
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.