Will the US still be the main driver of global growth in an election year?

Well, here’s the sort of statement that just begs me to eat my own words a year from now, but during years when first term US presidents are trying to get reelected, stocks have never been negative. That’s a historical fact. Interesting, but not bankable. I think this US election will throw up plenty of surprises, but I doubt it will move whole of market. Some areas like defence, drug pricing, China, tech and AI could be noisy and create some short-lived stock or sector specific volatility.

64 countries will be having elections this year, half the world’s population. I think that’s the highest ever. Given the volatility of the electorate and the candidates, another brick in the wall of worry, and perhaps a reason why many investors will stay on the sidelines.

Again, I doubt that elections in developed markets will have much of an impact on stock markets, but I’m sure some of the emerging markets could be spicier. Thankfully, we don’t invest in EM.

The US remains the home of innovation, adaptability, and repeatable growth. Valuations in the US don’t look cheap, but that doesn’t mean overvalued. In fact, if you’re not investing because of the high valuation of the US market, then you should invest outside of the Magnificent Seven because if you strip out the Magnificent Seven, the US is on a PE of 16, in line with the long-term average. These seven stocks drag up the overall valuation because they’re such a large part of the index. Controversially, I still don’t think they’re expensive because of their unique competitive dominance, high earnings growth, resilience, and potential for upward earnings revisions. This is scarce in a world where we aren’t likely to experience widespread corporate or economic growth. At the beginning of last year, economists thought the US GDP growth would be 1.7%. It turned out to be more like 4.2%. If you compare the US to the Eurozone, Eurozone GDP growth has been below US GDP growth for 75% of the 111 quarters it has existed. Why? Some analysts point to bloated government spending, higher taxation, more regulation, and a less flexible workforce. But there’s a hunger to innovate and invest in the US; double the venture capital spend as a percentage of GDP; higher R&D spend as a percentage of GDP; and the highest technology spending in the world. JP Morgan’s tech budget alone is $15.5 billion a year. That’s a difficult act to follow, and why, of the 20 most innovative companies in the world, according to consultants BCG, 15 are American and only one European.