Constructive On The US Stock Market

Our strategic view of the outlook on the US stock market continues to be constructive.

Our optimism is based on the US's strong economic fundamentals. An improving labor market, buoyant consumer sentiment, and a modest policy stimulus suggest that household spending will continue to expand at healthy rates by US standards. The improving economic cycle in the US has always been the biggest driver of our more positive view, and our economic and market indicators are positioned to support an extension of the price increase that could last through a few months and take US risk assets on a decent growth path. Therefore, our view on the S&P 500 index is bullish, even in the longer term.

The macro news calendar in the US has been light but generally positive. Business investment growth remains solid, as businesses replace worn-out equipment, respond to the improving productivity of their labor work force, and expand the capacity of the manufacturing sector. The trend of loans is also strengthening, historically leading to further growth and extending the life of this business expansion. At the same time, the employment data in the US - while muddier - has also been a bit better, and our forecast for the coming unemployment number release is better than the consensus. Furthermore, with statistics showing household income rising, we expect continued expansion of industrial activity in the US going forward.

As we have shown before, the S&P 500 index on average does significantly better when the momentums of economic indicators in the US are rising than when they are falling. What's more, the industrial news in the coming month should once again be good and we expect our final Leading Indicator for the US to confirm the basic positive message from the initial reading. The US market index is the star in the current stage of the cycle, which typically puts in a strong total return performance on a very broad basis. In summary, we believe investors should consider viewing the current valuation level as an opportunity to add exposure to the market.