US companies have performed well in the first quarter of 2021 due to reasons such as the spurt in Corona Vaccination, the sentiment raised by the reopening of the economy. Even the market has digested the signal of rising inflation and rate hike from the US Fed.
Market experts say that the fundamentals of the US market are looking very strong and investors who have the ability to digest the volatility in any near term are looking good opportunities for earning in the US market. Apart from this, investing in the world’s largest economy has its own advantages. Investing in the US gives us the opportunity to invest in some of the world’s biggest brands, including geographic diversity, volatility in exchange rates, and more.
Tech pharma and health care stocks saw strong gains in FY20. The reason for this has been that during the Covid Mahamari period, people turned towards the growth and defensive sector. It is expected that this trend will continue in the US market.
The US Joe Biden Administration may bring a $ 1.8 trillion relief package in the second half of 2021. Apart from this, the US government is preparing to make a big investment in the infra sector. Due to which we can see good growth in capital goods, materials, real estate and logistics sectors.
Being the tech capital of the world, America is the hub of cloud, artificial intelligence, machine learning, internet of things, 5G and robotics. The impact of America’s dominance in technology is that the technology sector’s weightage in the S&P 500 Index has been steadily increasing over the years. We expect to see higher growth in tech stocks as compared to traditional economy stocks going forward. Given this, the S&P 500 index will remain a wealth multiplier for a long time.
US investment concerns
The biggest concern in America right now is about inflation. Due to the weakness of the US dollar, imports have become expensive in the country, whose effect is being seen in the form of rising inflation. If inflation remains high and the employment front shows improvement, the US Fed will have to raise its rates, which could lead to a major correction in US equity markets. Because when this happens, institutional investors will start investing in debt (bonds) for a better yield by selling equities.
With the proposed relief package in America, there may be an increase in the financial deficit. Due to which further pressure on the US dollar will increase. In such a situation, if the taxes are increased by the Biden administration to reduce the financial deficit, then it will affect people’s earnings and ultimately the market.
Along with this, the effect of the US-China trade war can be seen on American companies. This impact will be more on American companies than on Chinese companies. In this also those companies which are dependent on exports and imports will be affected the most.
In the near term, the market will be eyeing the US Fed’s commentary at the next FOMC meeting. We believe that the US Fed will be more lenient on inflation and will continue to moderate its policies until there is a major reform on the unemployment front.
what is our strategy
The US economy and earnings fundamentals are improving steadily, but the only major problem with US equities is their costly valuations. For those who want to invest in the US market, it is recommended to adopt the strategy of buying on the downside. However, long-term investors can continue with their SIPs keeping the volatility in the short term. Invest a lump sum in your current SIP whenever the market sees a big drop.
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