PLENTY of ink has been spilled writing about how the US economy can’t grow forever.
And, as US President Donald Trump continues to battle with China over trade and economic measures weaken, the ink has recently turned into a flood recently.
We agree that all things must, at some point, come to an end, but we have no more insight into when the American economic engine will sputter and seize up than anyone else.
When this happens, it will almost definitely lead to a global recession that would send stock markets tumbling. Such is the economic cycle – boom and bust, in the parlance.
But there are far too many moving parts to make any accurate or helpful forecast about when that will happen.
For example, while everyone is focusing on a few problematic economic measures and headlines, there’s plenty of other data that’s actually reasonably heartening – not least those related to US households, whose spending drives most advanced economies.
Society and commerce continues through hard times and good. If you stand around waiting for the hard times to come and pass, you could be waiting a very long while and miss out on much-needed returns.
In the meantime, people will go to work, make things, sell their wares and create cool new products. They will live, too. They’ll take their kids to the cinema, their spouse to a sneaky anniversary getaway. They will see shows, if that’s their thing, or perhaps buy new gadgets – definitely clothes. They will shop, dream and create.
All of this is bundled up in the boring GDP measure that we are all so fixated on, and it flows through to company profits and stock market prices.
That’s why, despite all the drama you may read, we continue to own shares in US companies because we believe American households are in the best position to shop, dream and create.
We gravitate toward quality companies – those businesses that are the best in the world at what they do.
That leads us, almost invariably, to the US. For a whole host of reasons this is the place where great, world-beating companies are made by the dozen.
The country offers a mix of highly productive workers putting in some of the longest hours in the advanced world, a culture that celebrates success and a liberal, free society.
That and myriad other factors combine to make America the engine of the global economy and a magnet for the world’s poor and ambitious.
There are 1.6 million more unfilled jobs than Americans looking for work right now. Wages are growing faster than inflation and people have been confident enough to splash cash in the shops.
The US Federal Reserve has shown itself to be cautious about strangling the economy with its policies: in July it cut interest rates and halted the steady sale of the pile of bonds it acquired during quantitative easing.
Economic cycles don’t slump to bust simply because the boom went on for too long. As much as we humanise markets, they don’t die of old age.
Sure, there are risks out there that could puncture growth and create a recession - an intensifying trade war, a Chinese growth slump, even something out of the blue.
But there is always uncertainty. No one knows the future, and to get investment returns you have to take risk.
As things stand, there is nothing that sufficiently scares us to sell our stocks and retreat to extremely defensive assets that won’t make money unless the economy tanks.
At the end of the day, no one likes to watch their wealth shrink as markets fall, but it is only possible to limit these falls if you are also willing to sacrifice the potential for future gains.
We always stress that you should think long and hard about what you need from your wealth – and when you need it.
Talk to an adviser and prepare yourself for short-term falls, because they come hand-in-hand with investment.
David Coombs is a fund manager at Rathbones.
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