Why US equities will continue to reward investors

ON NORTH AMERICA

The US stock market has continued its strong rally from the post election dip in November last year. It is benefiting from the superior strength of the economy, the weak dollar, competitive unit labour costs, cheap energy, and sustained high profit margins.

The rally in valuation multiples does mean, however, that the market has less capacity to see off the threat of bad news – be this economic or simply in terms of disappointments in corporate earnings. Additionally, fiscal tightening provides a headwind for corporates this year, even if it is a manageable one; economic data has rolled over in spring for the fourth year in a row, and trends in real money supply are negative. On a more positive note, the market is supported by growing dividends and share buybacks. The overall number of shares available in the market continues to fall, fo...