The debate over 2019’s outlook for global equities turned a new page last Friday when the US non-farm payroll report in December 2018 surprised strongly to the upside.
The US added 312,000 jobs in December against analysts’ expectations of 176,000. Wages for US workers also rose 3.2% from a year ago and from 0.4% in November 2018. The unemployment rate rose from 3.7% to 3.9% as 419,000 new workers joined the workforce; this improves the labour participation rate to 63.1%.
The robust job data provides a strong counterpoint to headwinds of US-China trade tensions and rising interest rates. Comments by the US Fed Chairman Jerome Powell added to the joy on Friday when he commented that the Fed has noted “muted inflation readings” and they “will be patient as we watch how the economy evolves”. The US Federal Reserve had previously indicated that two more rate hikes in 2019 would be likely and has a target inflation rate of 2%.
Investor sentiment has been teetering on the edge since the last quarter of 2018 where we saw sharp market corrections across the board in both developed countries and emerging markets alike. What should investors do from here?
One, US is the world’s largest consumer market; consumption comprises nearly 70% of its gross domestic product (GDP). As an export-oriented economy, Singapore will continue to benefit from improving employment rates and growing wages of US households. Whether a recession occurs within the next few years, Singapore equities should continue to mirror US equity markets. It is too early to call for a recession and investors may want to consider a dollar cost averaging approach to investing in 2019.
Two, US manufacturing posted the highest annual job gain in 20 years, adding 284,000 new jobs. This is the effect of two key trends. Energy costs in the US have come down dramatically from fracking, and the US is now the top energy producer in the world, not Saudi Arabia or Russia. Be it the threat of a recession or strong oil production in the US, energy prices are not expected to rise dramatically within the next two to three years. The performance of the Singapore oil and gas sector may continue to be muted. Further, rising automation and technology usage in manufacturing has improved labour productivity dramatically, facilitating reshoring of manufacturing back to the US and other developing countries. Exposure to the technology sector will be an important investment theme moving forward.
Last, education and healthcare added over 517,000 jobs to the US economy in 2018. They are the second largest contributor behind professional and business services. Like the US, Singapore is a developed economy. Beyond services, healthcare is and will continue to be a dominant investment theme in the years to come. When evaluating portfolio allocation, this is the one thing investors should pay attention to.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.