Investors should fear U.S. shares, not the U.S. Fed

Matt Sherwood, Perpetual’s Head of Investment Strategy, Multi Asset, says be concerned about the US sharemarket - not US Fed policy. “In the past two years, S&P 500 has recorded 93 fresh record highs, but only four sectors have contributed to the rise. The other six sectors have collectively declined. This suggests that US sharemarket leadership is increasingly narrow and with small cap stocks being downgraded, the short-term health of the US market appears clouded….The US Fed will hike rates soon and this move will place pressure on corporate profits to drive returns, but it is hard to find a ‘goldilocks’ growth rate that is good for the economy and constructive for US shares. The problem for the market is not higher rates, but that there is little confidence that rate hikes in 2015/16 will be associated with macro improvements that will boost US earnings growth. Combining the narrow market rise and the Fed hiking rates without a clear uptrend in earnings, FY16 implies a more dangerous environment for US stocks. Better value exists elsewhere.” Full article available here (VIEW LINK)