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Citi’s top U.S. equity strategist Tobias Levkovich is out with a new special report titled The Raging Bull Thesis.He points to six bullish trends that he expects to develop in the U.S. economy over the next several years.
While each individually is important, the coalescence of these developments could prove to be very powerful for investors. It is relatively rare for just one concept to drive investors in a particular direction but it is often the combination of several catalysts that can act as the fuel for stock price trends. Thus, there is a good reason to be bullish about the coming several years in equities despite fears around high (and thereby perceived unsustainable) corporate profitability as well as justified European economic concerns.”
Some of these trends may surprise you.
Mandatory federal spending will rise significantly in 2014. Citi notes that the bond markets would react unfavorably to this. As such, it expects leaders to make significant shifts toward fiscal restraint in 2013. As fiscal uncertainty recedes, so should risk premiums and stocks should rise.
Citi notes that conventional U.S. oil production peaked in the 1980's, but that the advent of unconventional drilling and shale extraction is just beginning. Also, automobiles are becoming much more energy efficient. Citi analysts believe U.S. oil imports will gradually fall from 9 million barrels per day to 2 million barrels per day, the bulk of which would be imported from Canada and Mexico.
Citi notes that excess home supply is falling and home prices are bottoming. An improving housing market would have broad bullish implications including a growing construction jobs market and a healthier banking system.
U.S. companies are already moving manufacturing back to the U.S. due to rising land and wage costs in China. Also, recent natural disaster in Japan and Thailand have motivated companies to move more of their supply chain to the U.S.
Citi notes concerns that the ageing baby-boomers moving into low-risk, fixed-income type securities. However, dividend yielding stocks relatively more attractive than bonds. Analysts also note that the 35-39 year old demographic is large and includes new savers who are projected to start saving more aggressively in late 2012.
The U.S. is the leader in technological innovation and will benefit as demand for mobile technology continues to boom.
According to Citi research, global penetration for smartphones is around 27%, compared to 50% in just the developed world. U.S. is a global leader in information technology. Demand for more and better mobile devices will drive investment in software, infrastructure, chips, batteries, etc. And the US remains the global leader in information technology.
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