The U.S. economy may be heading for a Fed-induced hangover next year, warns the chief executive of one of the world’s largest independent financial advisory organizations.
The message from Nigel Green, founder and CEO of deVere Group, comes after President Trump ramped up Monday his criticism of the Federal Reserve.
In an interview with Reuters, Mr Trump said he was “not thrilled” with the Fed’s chairman, Jerome Powell, and that he would continue to criticize the central bank if it continued to raise short-term interest rates.
Mr Green comments: “Trump’s latest attack on the Fed is likely to be ignored by the central bank’s policymakers. It is almost certainly not going to derail the raising of U.S. interest rates, with the next hike likely to be next month, as they attempt to take the heat and froth out of the economy.
“The domestic U.S. economy is currently growing at an annualized rate of around 4 per cent a year.
“But given that the current strong growth is likely to accelerate the rate hikes, a Fed-induced hangover may be on the cards for the U.S. economy next year as it is slowly encouraged to cool down.”
“However, fears in the market about a full-blown recession in 2019 are misplaced.”
He continues: “With domestic economic growth easily outpacing that seen in Europe or Japan this year, and the dollar likely to rise further on Fed rate hikes, an overweight position in American stocks is currently justified.
“S+P500 stocks have had two quarters of strong year-on-year corporate earnings and revenue growth, while the index itself has failed to pass late January's all-time high. This suggests that valuations have fallen, reducing fears of Wall Street being over priced.”
He goes on to say: “The American stock market is diverse, and not just about the FAANGs. True, tech does make up a quarter of the index, but the category includes companies as diverse as chip makers and social media operators. Meanwhile, there is a large market of mid and small-cap stocks for investors to explore, enabling further portfolio diversity.
“The S+P500 total return index, which includes dividends re-invested, reached a new high a few weeks ago. This demonstrates the power of re-investing dividend income. Indeed, financial history demonstrates that for a long-term investor to make the highest returns, reinvesting the investment income within a portfolio is a key factor.”
The deVere CEO concludes: “The Fed is going to stick to its current trajectory of raising rates – despite Trump’s criticism. The criticism itself seems a bit odd considering it is Trump’s tax cuts and reforms that are probably the key driver of the growth spurt that is helping force the Fed to tighten monetary policy.”