One Man’s Opinion: Is Manufacturing The Only Weak Spot In The US Domestic Economy?

ManThe earnings estimate from US companies have been quite encouraging though a relatively small number of S&P 500 companies have reported their results thus far, said Luke Tilley, chief economist at Wilmington Trust.

While revenues have failed to meet expectations, earnings have managed to beat expectations although the expectations were revised down a little bit, he noted.

Asked to explain his investment strategy following the significant recovery in risky assets, particularly after the Dow Jones Industrial Average’s month-to-date jump of seven percent, Luke said recent stock performance has been very encouraging as the S&P 500 is just a few points below where it started the year. That’s a far cry from where the markets had slumped in August and September.

Wilmington Trust has been overweight on risk assets for the entire year and believes that’s where investors should focus on keeping in mind the economy still needs to overcome some hurdles. That said, the recent dynamic has been encouraging, he observed.

Asked to qualify the hurdles that he’s most worried about, Luke said questions still remain about the volatility witnessed in August and September. Also, there are questions around the Fed’s rate hike cycles and the future growth trajectory of emerging markets, including China.

On the latter though, it’s getting more and more encouraging. Wilmington always maintained China was not in any kind of a free fall; there’s no question about a slow-down there, but not serious enough to derail growth recovery in the US or derail global growth. While many investors have pushed-back a Fed rate-hike to 2016, Wilmington believes December 2015 is still a very real possibility, he argued.

Asked if the US economy, particularly the financial economy, is strong enough to withstand a Fed rate hike, Luke answered in affirmative. The US domestic data has been quite robust; retail sales number – excluding the latest reading, over a longer multi-month trend has been quite strong; the housing number also has been fairly strong.

The only weakness in the US economy has been the manufacturing sector and exports – which are pretty much linked to the weakening export markets and the slowing emerging-market economies. But the US domestic economy is fairly strong enough and ready for a rate hike, he observed.

Asked to comment on the domestic sectors that investors should consider for investment, Luke said Wilmington is currently overweight on financial services, healthcare and information technology as it believes these sectors will exhibit strong fundamentals for growth over the next 9 to 12 months.

The healthcare sector, however, has suffered a little bit since it has become sort of a (presidential) campaign issue in the US. But Wilmington still believes the fundamentals for those three sectors look pretty strong over the next 9 to 12 months, he concluded.

You can watch the video here.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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