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How to Find Value in the US Stock Market

How to Find Value in the US Stock Market



hello and welcome to the Morningstar series why should I invest with you I'm Emma Wallen I'm joined today by Nick Ford manager of the might and us opportunities fund hi Nick good afternoon Emma so this year has been quite flat for the US market apart from little dip in February around sort of interest rate and jobs figures concerns flat is not fantastic but it's a lot better than people were predicting at the beginning of this year and indeed last year this seems to be in a credibly unloved market where people love to predict its downfall what continues to keep it chugging along well then the day markets are going to be driven by earnings and we have that in spades in the u.s. at the moment we have a strong economy we have corporations that have just had a fantastic tax break which is encouraging them to to reinvest in their businesses they can pay their employees more consumers are feeling better as a result job security is high and we're at a point now in the economy where historically when when a cycle has been this long you would expect a downturn to be maybe around the corner this time could be different because one of the key parts of Trump's tax reform was he changed the way that that companies are taxed and he's encouraged companies to reinvest in their businesses by allow them to have reduced tax bills when they invest in new plant and equipment so this is we think going to spur a new leg of growth for the US economy corporations are now paying 21% tax rates compared to 35% which is freeing up a lot of cash to pay employees more and so forth so the net effect for for business confidence and earnings growth the key driver for markets is tremendously positive and if you look at that recent GDP growth figures for the US we've actually started to see an acceleration of deceleration we've started to see employment and record lows and people are now spending more money so really we have a kind of a snowball effect going on the US where things work should content um in the Commerce you continue to grow and how much that is baked into the prices already though because of course with politics very little as a surprise people seem to fanfare what they're going to do way in advance now in order to I suppose avoid things like the taper tantrum yeah so how much our stocks are already priced in these new tax rates and and indeed the buoyant consumer that's a very good question I think you have to look across different sectors of the economy we would argue that in some sectors maybe a lot of the good news is priced in and there's a lot of risk in other sectors valuations are still look very attractive and we would cite the technology sector as being one area where the good news is very much baked in we you can see software companies trading many of the most popular ones trading it up to twenty five times sales let alone earnings those are very very high ratings in other areas of the economy in may be more on the industrial side the consumer cyclical side Healthcare financials banks valuations really aren't too stretched at all so I think we've had a situation where maybe some of the more popular areas the market the technology areas that the the fangs have in aggregate stretched the overall PE rating of the S&P 500 but a lot of other good businesses have been but a little bit left behind so I think what we're excited about as we as we invest is the ability to to find some of the less popular names that are more attractively valued but still have very good prospects driven by the excellent economic outlook thank you very much this is Emma wolf and Morningstar thank you for watching


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