Can US Equities continue to rally?

US equity markets recorded strong gains in November although share prices wobbled during the month amid concerns that economic recovery is likely to be bumpy. The S&P 500 index rose by 5.7% during the month.

The Organisation for Economic Co-operation & Development now expects the US economy to grow by 2.5% in 2010, up from previous forecasts of 0.9%. 83% of companies in the S&P 500 index that have reported results exceeded consensus estimates for third-quarter earnings, according to data compiled by Bloomberg. Third-quarter profits trebled at Berkshire Hathaway, and the company voiced its belief that "the credit crisis has abated". Nevertheless, Berkshire's chief executive, legendary investor Warren Buffett, called for greater sacrifices from leaders of companies that have been rescued by the US government.

General Motors reported it generated $2bn in cash during the third quarter, and intends to repay government loans earlier than expected. Kraft maintained its hostile bid for UK confectioner Cadbury during the month, without changing the offer that was first made in early September. Meanwhile, Hewlett Packard, the world's largest PC manufacturer, made an offer worth $2.7bn for 2Com Corp.

Third-quarter profits at Wal-Mart, the biggest retailer in the world, rose by 3.2%, boosted by aggressive inventory management, but the company warned its expectations for fourth-quarter sales remained largely unchanged. Home Depot, the US's biggest home-improvement retailer, reported third-quarter profits that were boosted by cost-cutting measures. The company increased its full-year profits forecast.

The US's biggest department-store company, Sears Holdings, reported smaller-than-expected losses following a programme of inventory cuts and discount reductions. More US consumers hit the shops than last year during the post-Thanksgiving weekend; however, shoppers spent less this year than in 2008, according to the National Retail Federation.

The Federal Open Market Committee reiterated its undertaking to maintain US interest rates at their current "exceptionally low" level of zero to 0.25% for an "extended period". The committee warned that the US's return to economic expansion is not sufficient to justify higher interest rates, and an increase in rates will depend on inflation and employment. US consumer prices have fallen year on year for the past seven months, posting their longest continuous decline since 1955.

US unemployment reached a 26-year high of 10.2% during October, according to the Labor Department. Federal Reserve chairman Ben Bernanke warned that "significant economic challenges remain" and that employment remains "an area of great concern."