These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
The U.S. economy is growing only moderately and the job market remains sluggish, but stocks keep roaring ahead–and they should. American companies are fundamentally undervalued, and unless upheavals in the Middle East or a European debt crisis derail global growth, the Dow is headed for 13,000.
Growth in the range of 3% to 3.5% in the United States and about 10% in China is great for U.S. equities. American companies may not add employees in large numbers, but they can boost profits with only moderately expanding domestic demand thanks to breakneck productivity advances. And America’s larger companies–the S&P 500–earn about half their profits abroad, where they are poised to win big.
Investors should rebalance toward U.S. equities. Don’t abandon emerging markets but put new money into U.S. companies with global reach.
American companies that bring together multiple technologies, such as General Electric Co. (GE) and International Business Machines Corp. (IBM); complex expertise, such as in investment banking, construction and engineering and natural resources; and more focused technology companies that are part of complex virtual networks, like Advanced Micro Devices Inc. (AMD) and Cisco Systems Inc. (CSCO), are poised to reassert U.S. competitiveness. Healed from the recession, those companies are prepared to exploit profit opportunities in a moderately growing U.S. economy and rapidly growing Asia.
The structure of the U.S. private economy is changing–not necessarily toward more services, as that is largely played out. Investors should not be alarmed that housing is not recovering–the country has enough unsold homes to last several years.
Industrials that don’t use a lot of labor in production have abundant opportunities, and supporting industries in software, logistics, etc. all look bright. That’s why manufacturing, led by the auto sector, is stronger and finally adding some jobs.