US equities will continue to grow, defying some analysts' claims that the market is close to a peak, according to James Abate, manager of the PSigma American Growth Fund.
He sees “further upside in the profits cycle which, in turn, will help continue the bullish trend in the US stock market”, and adds that “bumps along the road” such as political unrest in the Middle East and Standard & Poor's (S&P's) lowering of the US credit outlook will not derail the process but offer opportunities.
To support his claim that US equities are far from peaking, Abate points out that the last cyclical peak occurred at the end of 2006, more than four years after the trough reached in mid-2002. Today, the economy has moved on less than two years from the trough reached in late 2009. In 2006 the return on equity for the average company in the S&P 500 Index was 16.9% and today it is 15.4%.
Abate also believes that US companies undertook their “most far-reaching and efficacious restructuring” to date in the recent downturn and that this has “raised the bar for asset efficiency and profit margins to levels that will surpass the 2006 peak”.
Abate claims a double dip recession is unlikely and is forecasting increased stock prices as well as a growth in profits. However, some analysts are worried that the end of the second round of quantitative easing in the US in June could push down stock prices.
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