Consumer spending has helped push the already-extended US business cycle into its ninth year, says MFS chief investment strategist James Swanson.
In previous cycles, Mr Swanson said, rising prices for goods and services have hurt consumers by pushing down real incomes — prompting the US Federal Reserve to hike interest rates to get inflation under control.
But inflation is only “mild” in the current cycle, he said — although the US Federal Reserve has signaled that it expects to tighten monetary policy through the end of 2019.
“While skies today are mostly sunny, a few clouds are casting shadows across the global landscape,” Mr Swanson said.
“The world backdrop darkened a bit in the second quarter of 2018. Economic data are now showing that the fast growth enjoyed by China, the eurozone and Japan in 2017 and early 2018 has given way to a slowdown, one that the US has thus far avoided,” he said.
In the short term, MFS is more optimistic about US stocks and less enthusiastic about European and Japanese equities, Mr Swanson said.
“While fundamentals in the US are now as good as many people have seen in their lifetimes, remember that business cycles do not last forever,” he said.
“Stock markets are expensive today relative to their history, so a cautious approach is warranted. But if you’re a US consumer, savor the moment, because the sun is shining brightly.”
