The head of investment at AXA Investment Managers Core Investments explains what developments can currently be observed in the United States of America and how these could affect the further economic development and thus the financial markets.
© AXA Investment Managers
In addition to the Brexit free trade agreement and the impending takeover of power by the Democrats in the USA, Chris Iggo, CIO AXA Investment Managers Core Investments, sees the number of vaccines administered as one of the most important parameters for the markets. It provides a scenario analysis for the largest world economy, the United States.
“There is a three-way bet for the golden twenties, two-thirds of which has now been met,” explains Iggo: On the one hand, Brexit has been completed, and on the other, Trump is as good as history. In order to fulfill the bet, progress now needs to be made in the fight against the pandemic.
The number of vaccines administered in the various countries will thus become one of the most important metrics for the markets in the medium term. A sharp decline in new cases, hospital stays and deaths is likely to result in an expansion of social mobility and a far-reaching reopening of economic sectors. “This is likely to result in an enormous amount of catching up to do in terms of consumer spending and investments, which will contribute to an upswing in the second half of the year and significantly support companies’ earnings growth,” predicts the AXA IM man.
Americans are saving again
According to Iggo, this is supported by a more robust starting position than after the financial crisis. Private households can make a significant contribution today. With the pandemic, consumption decreased significantly, while the savings rate rose sharply at the same time. This is a novelty for the US, whose consumer spending was mostly more than 80 percent of GDP. Between 2009 and 2019, the US savings rate averaged around seven percent. In the second quarter of last year it was then 25 percent, in the third quarter 15 percent and in the fourth quarter probably still 12 to 13 percent of disposable household income.
Growing net worth
In addition, the net worth rose. After 2008, net worth (Q2 2007 – Q1 2009) fell by 15 percent. An increase of more than seven percent was observed between the third quarter of 2019 and the third quarter of 2020.
Good starting position
For the US economy as a whole, this is a good starting point. “There is therefore much to be said for considering airline or hotel company shares again. Activating savings should help boost overall demand and also have a positive impact on further upward revisions in corporate profits,” concluded Iggo. (aa)