Banking some profits
James Penny, CIO at TAM Asset Management
Given the strength of the US market over the last 10 years, it makes sense to want to bank some well-earned profits. However, at the same time, one has to look at the innovative growth companies within the S&P 500 to acknowledge why it has outperformed, as well as recognise the US market looks set to continue being a home of growth and innovation.
Importantly, this is a boon for the future prospects of the US market and a reason to remain invested. Over the short term, as always, with a market looking richly priced, it is down to active, not passive management to pick out the true value remaining in the market.
It makes sense to recognise the European market as an attractive store of comparative value versus the US and some investors are taking advantage of the divergence as we begin the second half of the year.
Confidence and challenges
Charles Kantor, portfolio manager of the Neuberger Berman US Long Short Equity Fund
Simply put, unprecedented fiscal and monetary policy coupled with confident consumer and corporate leaders in a fully opened country will be strong medicine for the economy. This should contribute to a durable and sustainable pick-up in GDP growth and earnings expectations, as a confident consumer – with a stronger balance sheet – is the key ingredient for a consumer-led economy. If this occurs, we could see the exit run rate of 2021 company earnings higher than forecasted today, despite already marching 14% higher YTD.
We now face early cycle dynamics not seen for a decade – above trend GDP and corporate earnings growth, declining unemployment, and ultra-low interest rates. Start-ups are blossoming and the financial sector is on a solid footing. An ‘online’ economy has kept America running through its darkest days and is still expanding upon its relevance to both corporations and consumers.
However, the current investing environment is not without challenges. It is flush with a confluence of fiscal policy considerations, monetary policy stimulus, public health concerns, geopolitical uncertainty, commodity price volatility, inflation dynamics and economy restarting question marks. As market dynamics change, this can cause company market values to dislocate from long-term potential values – creating potential opportunities both long and short.
