With Europe and BRIC markets still on shaky ground, we need to find comfort where we can, which makes the US stocks surprisingly attractive, writes MoneyShow.com editor-at-large Howard R. Gold.
Investors may have a decent opportunity to make money right under their noses, and they don’t want to hear about it.
I’m talking about US stocks, which have very quietly put up decent numbers. I’m not talking shoot-the-lights-out returns—if that’s what you’re looking for, you really need to get a grip.
But those few investors who have stuck it out in US equities have managed to do OK over the last couple of years, and certainly much better than those who took flyers on “sure growth bets” like emerging markets.
- Read Howard’s 2011 column on why emerging markets have had their day.
Only US Treasury bonds are hated more, and they were by far the best-performing asset class last year. “The entire market has been wrong about fixed income for the last five years,” says Jay Kloepfer, director of capital markets and alternatives research at Callan Associates in San Francisco.
Callan is the creator of the well-known Periodic Table of Investment Returns, which shows graphically which asset classes were the best and worst performers every year.
The firm hasn’t published its latest version (including 2011) yet, but preliminary data suggest US stocks ranked near the top last year. The S&P 500 index just about broke even in a year when markets like China’s lost 20%.
Now before you start firing off comments, let me assure you I don’t work for Wall Street, the mutual fund industry, or the US government. And I don’t make money if you follow my advice.
But I happen to think investing in US stocks is a good idea for any US-based investor who wants to grow his or her nest egg. And though I don’t recommend a big stock position for anyone (no more than 50% of your assets), I would keep two-thirds of your equity holdings in US stocks.
Why? Mostly because the US economy isn’t as bad as so many people think it is.
Yes, unemployment is going to remain high for years to come, and that will hurt a lot of people. But investing is all about change, specifically the direction of that change, and from that standpoint the economy and employment are moving in the right direction. We’ve had private sector job growth for 22 consecutive months, manufacturing is rebounding, and consumer spending is pretty strong.
“The US economy is improving. It’s improving very slowly,” says Richard Bernstein, the former chief investment strategist for Merrill Lynch who is now CEO of Richard Bernstein Advisors in New York. “Ultimately the trend is in the US’s favor.”
Bernstein has preferred US equities to emerging market stocks for some time. In fact, he says the S&P 500 has outperformed the BRICs (Brazil, Russia, India, and China) over the last four years, from 2008 to 2011.
US companies are starting to bring jobs back to the US, because the total costs of making goods here are lower and the American workforce is so productive. Last week, The Wall Street Journal reported that wage and benefit costs at a Caterpillar (CAT) plant in Illinois are less than half of what they are at another plant across the border in Ontario, Canada.
For what it’s worth (given their track records), economists project the US GDP will grow by more than 2% this year. That’s no great shakes, but it’s a lot more than we’ll see in Europe and Japan.