The U.S. economy and broad-market exchange traded funds (ETFs) are showing signs of low and slow growth, and the economy could continue its sluggish march for another decade.
According to Paul B. Farrell for Yahoo! Finance, the U.S. economy will need a minimum 3.3% of real GDP growth to maintain a stable unemployment rates in the next decade. Gary Shilling, one of the world’s leading economic forecasters, remarks that we’ll be lucky to see 2%.
Shillings argues that American consumer retrenchment, bank deleveraging, the government’s greater hand in the economy, developed countries’ shift to fiscal restraint and lower commodity prices will guarantee America’s slow-growth over the next 10 years.
Additionally, America is moving toward a higher savings rate. Rising protectionism will reduce growth, housing market weakness, deflationary trends and reduced municipal spending will all put pressure on growth and keep unemployment high, Shillings adds.
To that end, Shilling has some suggestions. Areas he anticipates to be underperformers include:
- Financials. This includes banks and credit-card or other consumer lenders due to regulatory uncertainty, lingering weakness and cutting back on the “borrow-to-binge” mindset.
- Homebuilders and Commercial Real Estate. Real estate and mortgages may get worse. Office vacancies are still high.
- Commodities. Shilling believes that commodities are more of a speculative bet than anything else.
- Emerging markets. Developing countries that depend on exports won’t profit from low-growth developed economies.
- Japan. “Japan’s aging and declining population and troubled export outlook may finally be catching up with it.”
On the flip side, Shillings urges investors to look into these areas:
- Income-producing. Investments include utilities, drugs, telecoms, high-grade munis, preferred and so on.
- American energy sources. American energy is “very bright” while imports remain unstable.
- Health Care. Health care is 16% of GDP and growing.
- U.S. Dollar. Shillings has faith that the greenback will remain dominant.
- Consumer Staples. The basics necessities are good in any kind of economy. But also small luxuries, or “cheap chic,” like chocolates, wine and cigars.
These are certainly some interesting thoughts, but here’s another way to look at it: why not look for opportunities using trend following? It’s the strategy we use for our clients in both bull and bear markets. It helps us locate opportunities and has us positioned to take part in any potential long-term uptrends. While Shilling’s ideas are certainly areas to monitor, using trend following will allow you to react to the market’s moves based on what actually happens. Learn more about trend following by reading The ETF Trend Following Playbook.
For more information on trading ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.