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Prepare for lower US GDP than forecast, warns Threadneedle
US GDP will grow slower than anticipated this year, but individual US stocks still offer good opportunities, according to Cormac Weldon, head of US equities at Threadneedle.
Mr Weldon said recession-hit companies had cut back on costs at their fastest rate since records began in the 1960s.
But he warned demand for their products would be lower than expected, as private consumption had historically taken at least three years to recover following a financial crisis.
"In talking to companies we find that management teams are being very cautious in adding resource back into their businesses. New hires are often taken on on a temporary basis, and capacity is not being increased significantly," he said.
"This lean management approach affords companies impressive levels of operational gearing into the recovery, magnifying the impact of an upturn in demand on profits.
"With corporate bond yields now much lower than they were a year ago, we see the scope for asset allocation flows to favour equities as the recovery matures."
In terms of US equity sectors, Mr Weldon said the Threadneedle team was focusing on technology in particular.
"Having come through the TMT [technology, media, and telecommunications] boom and bust 10 years ago, surviving management teams are well-versed in running their businesses through difficult times. Free cash flows are particularly strong and many of the companies are world leaders in their chosen field," he said.
