By Gary Stringer, Kim Escue and Chad Keller, Stringer Asset Management
As we have been discussing for the last few months, the pace of global economic growth has slipped and is likely to continue that slower growth trend. For example, U.S. manufacturing surveys have fallen 3.45% over the last three months.
Additionally, U.S. services surveys (non-manufacturing), which represent the bulk of our economy, have fallen 1.51% over the same period. European economic growth has slowed even more sharply as analysts are now forecasting a meager 0.5% second quarter 2018 GDP growth rate. With European business surveys declining at the same time as the political uncertainty in countries like Italy has increased, our outlook for the euro zone has diminished.
Importantly, though the U.S. surveys referenced above have fallen, U.S. leading economic indicators still point to some of the best economic growth potential in the world.
Though we may see monthly jobs creation in the U.S. slip from its recent strength, the labor market still looks rather solid. For example, we have seen a spike in the number of open jobs according to the Labor Department’s Job Openings and Labor Turnover Survey report. Meanwhile, weekly jobless claims are at their lowest levels in 45 years. This suggests to us that employers continue to see strong demand for workers and will continue to do so.
Slower economic growth is still growth and we expect aggregate corporate revenue and earnings to continue advancing, which can support higher stock prices. In this environment where the U.S. may lead economic growth in the near-term, investors may want to pivot their exposures away from areas that are more vulnerable and emphasize areas that should benefit.
For instance, we recently made some changes in our tactical equity allocation to focus more on U.S. led revenue and earnings growth by adding an allocation to internet-related equities along with healthcare equipment. We favor internet stocks since they reflect consumer and business preferences for internet-related services, such as shopping and entertainment. Healthcare equipment reflects our confidence in that industry as the world’s wealthiest society ages. Importantly, both of these areas rely heavily on the U.S. economy for revenue growth.
This article was written by Gary Stringer, CIO, Kim Escue, Senior Portfolio Manager, and Chad Keller, COO and CCO at Stringer Asset Management, a participant in the ETF Strategist Channel.
DISCLOSURES
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