Fireworks on US markets may last way beyond July 4
YESTERDAY’S US Independence Day celebrations were muted as firework displays were cancelled, but the country’s stock market continues to put on a dazzling show. After the shock of the financial crisis, wall Street went on to enjoy its longest bull run in history, powered by the runaway success of its world-beating “mega-cap” technology giants.
Investors have made fortunes from holding shares in social media site Facebook, smartphone maker
Apple, retail giant Amazon, streaming service Netflix and Google-owner Alphabet.
Apple, amazon, alphabet and Microsoft are the only US companies in history to be valued above $1 trillion. Incredibly, just when analysts thought that the tech giants could not get any bigger, Covid-19 has given them another boost.
As the planet went into lockdown, people kept up with friends on Facebook, logged on to their iphones and Macbooks, splurged on Amazon, binge-watched Netflix and Googled just about everything.
If you hold US funds inside your pension or Stocks and Shares Isa, you will have reaped the benefit. But can the US continue to outperform as political tensions grow ahead of the presidential election on November 3?
The Nasdaq index of US technology stocks has returned an astonishing 500 per cent in the last 10 years, thrashing almost every rival. If you had invested £10,000 a decade ago, you would have £60,000 today.
Big tech’s success powered the US S&P 500 index of top stocks, which grew around 300 per cent. Over the same period, our FTSE All-share Index grew just 87 per cent. Your money has gone much further in the US.
Fund-calibre managing director Darius Mcdermott said US markets have even shrugged off the pandemic: “While the UK is still down 17.6 per cent so far this year, the S&P 500 has held steady and the Nasdaq is up 19.8 per cent.”
US stocks face economic and political uncertainty, and fears of a second coronavirus wave, but investors should retain exposure. “The US is still the world’s largest economy, and too important to ignore,” he added.
If you want to invest in the US, Mcdermott suggests funds Axa Framlington American Growth, JPM US Equity Income, Schroder US Mid Cap and LF Miton US Opportunities.
The popular Fundsmith Equity, managed by Terry Smith, is heavily invested in the US, and grew 146 per cent in the last five years. It is now one of the UK’S largest funds, worth more than £20billion.
Scottish Mortgage has done even better, returning an incredible 222 per cent over the past five years. It is a global fund, but its US holdings include big positions in Amazon and alphabet. with both funds, remember that past performance is never a guarantee of future success.
Ryan Hughes, head of active portfolios at investment platform AJ Bell, said Baillie Gifford American is now one of the most popular funds among its investors. “It has returned 54 per cent during the past six months, helped by its concentrated positions in amazon, tesla and Netflix,” he said.
By comparison, the domestic stock market has flopped again.the four worst performing sectors in 2020 are all from the UK – with the Equity Income sector falling 20 per cent, and the All-companies, Smaller Companies and Equity & Bond Income sectors faring almost as badly.
Adrian Lowcock, head of personal investing at advisory firmwillis
Owen, said UK performance has been hit by the weak pound and the large number of companies cutting dividends during the pandemic.
It could bounce back, especially if we get Brexit clarity. “The worst is probably over now,” Lowcock said.
Willis Owen figures show that Morgan Stanley US Growth is a top performing fund this year, growing 64 per cent, closely followed by Matthews China Small Companies. “Chinese shares have performed well as the country was the first to go into lockdown, and the first to come out.” LF Ruffer Gold is up 56 per cent this year, as investors poured into the precious metal as a safe haven.
‘Stocks face both economic and political uncertainty, and fears of a second wave of coronavirus’
Politics will dominate as President Trump seeks re-election and could cast a cloud over the stock market.
Fidelity International’s portfolio manager Aditya Khowala said Trump faces a tough task as the US grapples with recession and Covid-19.
He expects Trump to “throw the kitchen sink at the economy”, on top of trillions of dollars of stimulus from the US Federal Reserve: “GDP could increase more than 20 per cent in the third quarter as a result.”
That would boost US share prices as well as Trump’s election hopes. Khowala said the US market may look expensive after recent success, but has momentum on its side.
The US tech giants face regulatory challenges and cannot maintain today’s growth rates forever, but most investors should have some exposure.
Remember to diversify by investing in regions such as China and Europe. Who knows, even the UK market might put on a show one day.