Investors are concerned about the labor market inflation risk
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The market seems to like its heat. The Federal Reserve Board of the United States is setting aside an additional $120 billion a month to purchase financial assets.Congress has agreed to a $1 trillion package Additional expenses About infrastructure. The Democrats are eager to pass an additional 3.5 trillion dollar budget plan.
Therefore, since all these funds are under planning, so far, this year has been a good year for investors in general stocks, especially US stocks.The World Index rose by an impressive 17%. Standard & Poor’s 500 Index, An increase of 22%.
The performance of other major national indexes is lower than that of the United States, and many indexes are also lower than the world indexes. US stocks, which already dominate global indexes, now account for 67.7% of the total developed world markets.
At the beginning of the year, due to the expected recovery from the pandemic shutdown, the old, more cyclical industries have seen a good catch-up and saw better performance in many parts of the world outside of the United States.
Then, the focus shifted to the technology sector and the better performance of the US market that dominates good returns in 2020. In anticipation of a global recovery, I will include more of the FT fund in the world index, which is our largest single holding, accounting for 20% of the fund. In hindsight, staying in the United States will do better. Given the low interest rates, half of the bond portfolio is almost useless. The dominant US short-term inflation bonds are moderately optimistic. As I expected price increases to improve, inflation bonds accounted for 20% of the total portfolio.
Why does the United States continue to win? The country’s good performance last year was attributed to its highly focused technical success stories of obtaining huge additional demand from Covid-19 restrictions. Microsoft, Google, Apple, and Amazon have taken their answers to the blocked life to the world in large strides.
This year’s performance seems to be attributed to the central bank and federal budget injecting a greater degree of monetary and fiscal stimulus into the U.S. economy than in Europe, Japan, and other larger advanced economies.
Most of the extra cash created is in U.S. dollars, and these U.S. dollars have already left the bond market. Because the Fed bought so many bonds, American investors used the money to buy stocks in entire domestic and foreign companies, because American companies have begun to buy assets frantically, especially British companies.
The United States remains the largest component of the economies of developed countries. Its population of 330 million is more than the combined population of Britain, France, Italy, South Korea, Spain and Canada, and it also exceeds the combined population of Japan and Germany, the two largest developed countries. Its per capita annual income was listed by the World Bank at US$63,000 last year, which is more than 50% higher than the United Kingdom, France or Japan, and 130% higher than Spain.
Nevertheless, the United States’ share in the world stock index is even higher than the United States’ share in the income of developed countries. The ratings of their stocks tend to be higher, reflecting their growth opportunities, and the country’s economic success is more reflected in its listed companies. All this raises a question. How long can the United States maintain this dominant position, and how long can it surpass other countries?
We used to count on the emerging world to provide the United States with longer-term competition. As many people correctly believe, China will become the main challenger.
China’s population is more than four times that of the United States, and once it reaches a quarter of American per capita income, it will have a larger economy. So far, with years of strong growth, it has reached 17% of American per capita income.
But as China’s economy is getting closer and closer to surpassing that of the United States, the country is turning internally. It is attacking its own entrepreneurs and freer thinkers, and is paying more attention to the implementation of reunification and the establishment of war forces in the country.
Its stock market has been struggling for several years, and this year it has been hit harder by the passive management practices of China’s current leadership. The Shanghai Composite Index is well below its 2015 high and only rose 1% this year.
China no longer tries to rival the United States in consumer digital services, but instead focuses on expanding alliances and trading partners among low-income countries within its sphere of influence through the “Belt and Road” initiative.
Some time ago I invested the fund in Taiwan Index Tracker Because of concerns about the direction China is taking and the investment portfolio has benefited, investment funds are not ordinary Chinese ETFs.
The biggest question in the future is when will the US market lose momentum?President Joe Biden’s reputation as a good friend of allies and a pair of safe hands is due to his unilateral decision to pull Leave Afghanistan.
His economic policies have been criticized because he apparently intends to stimulate the economy through massive and sustained monetary and fiscal expansion. If the US economy overheats and causes excessive inflation, investors will become nervous. The Fed may always cancel stimulus measures too abruptly in anticipation, or be forced to cancel stimulus measures because the market is worried about it getting out of control.
for the time being Jay PowellAs the chairman of the Federal Reserve, US President and Secretary of the Treasury Janet Yellen (Janet Yellen) does whatever she wants. She believes that the current high inflation will be temporary. He continues to create these new dollars.
I still hold large positions in American and world stocks, and the longer the bull market runs without correction, the more worried I will be. Eyes will increasingly turn to inflation and labor market conditions. If temporary inflation also leads to a surge in wages, the Fed will need to control the situation.
Sir John Redwood is Charles Stanley’s chief global strategist. The FT fund is a virtual investment portfolio designed to demonstrate how investors can use a wide range of ETFs to access the global stock market while reducing investment costs. [email protected]