The global economy has undergone significant changes since Q3 2017, experiencing four distinct cycles: the U.S.-China trade war (2018-2020), the Covid-19 pandemic (2020-2021), a post-pandemic recovery characterized by high inflation (2022-2023), and the onset of a global recession (2023 onwards). Despite these challenges, the U.S. economy has demonstrated resilience, with industrial production increasing by 1.9% since November 2017, while other major economies such as the euro area, the UK, and Japan have seen declines. Federal Reserve Chair Jerome Powell emphasized that the U.S. economy is 'in a good place overall,' reflecting a positive outlook amid rising protectionism, particularly under former President Trump's second term, which could impact economies like Mexico and China. [46757b4]
Investment in technology, especially artificial intelligence (AI), has been a significant driver of U.S. economic growth. Capital expenditure by major tech companies has surged from $129 billion in 2021 to over $230 billion in 2024. Notably, OpenAI has announced plans to invest $500 billion in AI infrastructure, while Saudi Arabia's Crown Prince Mohammed bin Salman has committed $600 billion in U.S. investments. This focus on technology has contributed to a remarkable 99% increase in S&P 500 earnings since November 2017, outperforming European and Japanese indices. [46757b4]
As of June 2023, foreigners owned a record 17% of U.S. equities, highlighting the global interest in U.S. markets. A recent Goldman Sachs conference revealed that 58% of participants expect the U.S. to be the top-performing market in 2025, with Japan trailing at 13%. This optimism is bolstered by U.S. corporate investments, which Goldman Sachs identifies as a key factor for market confidence. [a1937700]
However, concerns loom over the sustainability of U.S. stock and currency amid Trump's new tariffs on Canada, Mexico, and China, which affect 43% of U.S. goods imports. These tariffs could have significant implications for the U.S. economy and its trade relationships. Additionally, Trump's ambitious $100 billion Stargate project aims to boost infrastructure and capital spending, further complicating the economic landscape. [a1937700]
The U.S. stock market is currently showing a positive valuation trend compared to the euro area, reinforcing the argument for an overweight position in U.S. assets. Analysts suggest that the overall economic outlook for the U.S. remains superior, driven by robust consumer spending and corporate profits, which are projected to rise by 9% in 2025. This optimism is tempered by concerns over inflation, which has seen the Personal Consumption Expenditures (PCE) index rise to 2.6% year-on-year in December 2024, prompting the Federal Reserve to consider the pace of future interest rate cuts. [26d13f53][0c4dc4bc]
In summary, the combination of strong technological investment, resilient industrial production, and a favorable stock market environment positions U.S. assets as an attractive investment opportunity, despite the backdrop of global economic uncertainty. [46757b4]