Time to keep faith in the American dream: Covid virus breeds uncertainty but look to the long term

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These are volatile times for the stock markets. The changes resulting from the emergence of the Omicron version are particularly troubling for anyone holding money in US stocks and funds, raising concerns from the argument that Wall Street was already due for a correction.

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The S&P500 index has more than doubled since the start of the pandemic, easily outperforming the FTSE 100, even taking into account the recent sell-off.

Will saying goodbye to America now be a short-term exaggeration, or a level-headed decision based on the likely repercussions for the US economy from the new version?


As one analyst put it: ‘No one knows how it will go.’ Another commented: ‘We are swimming in the dark.’ Maybe true, but not helpful.

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When professionals talk about this sort of thing, it’s wise to consider your options, not rush action.

Central banks, the Federal Reserve’s stimulus program that has boosted markets, are set to cut back earlier than expected.

Fed Chairman Jerome Powell is warning of “downside risks to employment and economic activity and increased uncertainty to inflation.” Earlier Powell considered inflation to be ‘temporary’.

Even before the Omicron news, Goldman Sachs was predicting a below-average stock market return next year as a result of factors such as ‘declining economic growth’.

However, as James Thomson, who manages the Rathbone Global Opportunities Fund, points out, American companies are growing their profits four times faster than the rest of the developed world.

He argues that ‘many of those competitive advantages are permanent’. One reason to stay with US stocks over the long term.

Whatever unfolds in the long run, there will be trouble going forward, volatility is likely to persist. But some of those who study the Wicks Volatility Index, known as Wall Street’s fear gauge, believe its latest movements indicate that Omicron’s effect may be short-lived.

Warning: Fed Chairman Jerome Powell

Warning: Fed Chairman Jerome Powell

Since the S&P is dominated by tech companies, a sell-off would mean saying goodbye to Amazon, Alphabet, Apple, Facebook owner Meta, Netflix, Zoom and others.

These companies facilitated entertainment, education and working methods during the lockdown and rewarded the investors immensely. For example, they are a mainstay of many popular international funds, such as the £4.8 billion F&C Trust.

However, President Biden appears determined to impose more rules on the tech titans, reflecting a broader global shift.

Yet optimism still surrounds the region. As technology facilitated vaccine development through the use of AI (artificial intelligence), the emergence of the Omicron variant may ensure that the role of the sector will now be ‘raised to a new level’.

At least that’s the view of Ben Rogoff of Polar Capital Technology Trust.

But those who admire America as a global superpower are also becoming more cautious.

Pacific Asset Management’s Will Thompson cites concentration risk in many portfolios, with investors unintentionally exposed to America more than sensible.

Old Economy Stocks Like Coca-Cola and Kraft Heinz Both Are in Warren Buffett's Fund

Old Economy Stocks Like Coca-Cola and Kraft Heinz Both Are in Warren Buffett’s Fund

If you’re reluctant to give up on the American dream, look for opportunities in old economy stocks like Coca-Cola and Kraft Heinz, both in Warren Buffett’s Berkshire Hathaway Fund.

The stock price of the $80 billion company Ford has risen since January. The Mustang Mach-E, its electric sport utility vehicle, is popular and an electric pick-up truck is on the way.

In addition, the bid for Tesla, a company worth about $1.1 trillion, is still under discussion.

It’s worth checking out trusts like JPMorgan American, which have turned away from the technology. Trust manager Jonathan Simon explains. ‘As bottom-up stock pickers, we aim to find compelling opportunities, despite the short-term news flow.’

The trust is at a discount of 2 percent on the net value of its assets.

I’m keeping faith with America. But before Powell acknowledged that inflation was no longer temporary, I put some cash into Raffer, the defensive trust that pledges not to lose money.

Its portfolio includes US Treasury inflation-protected securities, but it is a tech stock free zone. You can have too much of a good thing.


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