Nobody likes to be late to the party, especially investors. Luckily, Capital Group is stock The market festivities continue a little further: In its interim report, the century-old investment firm paints a generally upbeat picture for the global economy, highlights bright sectors in the U.S. and Europe, and identifies the industries that stand to gain (or lose) the most from the upcoming U.S. presidential election.
Here’s what you need to know to get ahead.
1. American consumers are providing a much-needed boost to global economic growth.
The United States is at the center of global economic growth this year. Capital Group predicts that the world’s largest economy will grow 3% this year, buoyed by robust economic growth. consumer With spending, a tight labor market and big investments in supply chains, the International Monetary Fund essentially agrees, projecting the U.S. economy to grow more than twice as fast as any other major developed country. interest Charges and protracted inflationCompare this to Europe, where growth is expected to be just 0.8%.
Capital Group’s forecast outlook for the world’s largest economies based on various characteristics. Long-term tailwinds and headwinds are based on structural factors such as debt, demographics and innovation. Short-term tailwinds and headwinds are based on cyclical factors such as labor, housing, spending, investment and financial stability. The size of the circles approximates the relative value of each economy. Source: Capital Group.
2. Profits for American companies are expected to soar.
Capital Group’s earnings outlook is bright. Profit Growth produces returns – and that’s a good reason stock Investors should keep their party hats on: Wall Street analysts expect profits at S&P 500 companies to grow by more than 10% in the second half of this year (and even more in 2025), while the folks at Capital Group are predicting gains of up to 15% this year.
And while the market is certainly rising, we don’t think stock valuations are overly stretched, as price-to-earnings ratios are near their 10-year averages. That said, there are potential risks to these optimistic forecasts, including the risk of stubbornness. inflationfluctuations in oil prices, geopolitical tensions, and other unforeseen and uncertain events.
3. Technology and public works are the most promising areas for AI.
Investing in AI is not one size fits all. As the technology matures, investments will change. Today, investors should strive to understand the AI ​​”stack” — the four layers of technology that drive it all. Companies are scrambling to play at each layer: semiconductors, infrastructure, applications, and the AI ​​models themselves. The trick is to find companies that have the brains and the money to win the race.
Capital Group’s interpretation of the technology stack that operationalizes AI. On the right are some of the market share leaders in each segment. Source: Capital Group.
The big players are alphabet, Metaand Microsoft They are spending tens of billions of dollars to monopolize multiple layers. And while they are busy with their own processors, NVIDIA, Broadcomand micron It is likely to continue to hold its market share for years to come. Finally, let’s not forget the energy sector, which is in the spotlight as AI data centers are consuming electricity like there is no tomorrow, causing a surge in demand for energy sources, including nuclear.
4. The European aerospace industry is a hidden gem.
Capital Group has its sights set on the, er, booming aerospace industry, and for good reason. With passenger numbers soaring and supply chains tightening, the sector could be on the brink of a supercycle, meaning there’s plenty of room for above-average demand growth. But the real problem may be on the supply side. Backorders for new aircraft stretch out to 2030. Order books are filling up in markets like India and China as huge middle classes take to the skies. In an industry dominated by America’s Boeing and France’s Airbus, the resulting pricing power is hard to ignore.
Additionally, industry leader Airbus recently cut its aircraft delivery targets due to supply-side challenges, indicating that meeting this new demand will be more difficult. This also means that older aircraft are likely to fly longer, which means more maintenance. Nearly 70% of commercial aircraft in use are more than five years old, and 32% are more than 12 years old. This will boost companies in the aftermarket services industry, which is already in high demand.margin Business. Like France-based suppliers saffron UK based Melrose Industries Regularly earning profits Revenue This is revenue generated from work on existing products. In fact, because aircraft parts are serviced multiple times during the life of the aircraft, the revenue generated from replacement parts often exceeds the initial sale price. These perpetual revenue streams provide a solid foundation for long-term investment potential.
5. US elections can disproportionately benefit certain sectors.
we stock Post-election performance typically improves regardless of who wins, but the impact on each sector varies. This year, a lot will depend on whether the winning presidential candidate can muster enough support to secure the victory of the “lesser candidates,” potentially giving that party control of both the US Senate and the House of Representatives in one fell swoop.
In a “red wave” scenario, where Republicans prevail, stocks of banks, health care providers and oil and gas companies could benefit from expected deregulation moves. Conversely, in a “blue wave” scenario, where Democrats prevail, shares of renewable energy companies, industrial stocks that could be involved in infrastructure projects and telecommunications companies that could get funding for nationwide broadband expansion could rise.
Potential beneficiaries of a Republican majority in the United States (left) or a Democratic majority (right). Source: Capital Group.
A stalemate in which neither party has complete control is unlikely to be a game changer for markets, but no matter what happens, we can expect occasional market turmoil. Volatility Leading up to the November 5th election.
What does this mean for you?
Simply put, there is still a lot of movement in certain markets. stock When stock indexes hit all-time highs, some people think they’ve missed an easy opportunity. But that’s simply not true. Markets have a reputation for trending up and hitting multiple peaks. If history is any guide, bull markets are marathons, not sprints, lasting two to five years and bringing investors an average return of about 178%.
Sure, market declines happen and stock prices can fall at any time. But history shows that new highs are prime entry points for long-term investors. Since 1950, the S&P 500 has generated impressive average trailing-month returns of 17.1%. rear The index hit an all-time high, and except for the period during the global financial crisis, increases have been almost certain during this period.
Bull markets can last a long time, but they don’t last forever. Bull markets are just part of the market cycle. Knowing where you are in the cycle and what’s coming next will help you stay sane and maintain that all-important long-term perspective.
