Investors more confident about US recovery

Although share prices in general dropped around the world during November, US stockmarkets fell less heavily than many European ones. The Dow Jones Industrial Average index declined 1% over the month while the S&P 500 index fell 0.2%.

Medium-sized and smaller companies performed better than larger companies during November, as investors became more sanguine about prospects for the US economic recovery. Meanwhile car manufacturer GM, which filed for bankruptcy last year, returned to the stockmarket via an IPO that raised more than $20bn (£12.6bn).
According to recent figures released by the Investment Management Association, North American equity funds experienced net outflows during October amid some uncertainty about the speed and stability of the economic recovery.

Nevertheless, US chief executive officers appear to have become increasingly confident about the outlook for economic conditions and prospects for sales growth and corporate spending, and the Young Presidents’ Organization index of sentiment rose in October. Meanwhile, the Organisation for Economic Cooperation & Development (OECD) expects the US economy to expand by 2.7% in 2010, 2.2% in 2011 and 3.1% in 2012.

In rising 0.6% year on year during October, US inflation registered its smallest annual increase since records started in 1957. The US Federal Reserve announced plans to expand its asset purchasing programme by $600bn, having found that progress towards its key objectives has been “disappointingly slow”. The news received a mixed reception and was not welcomed by leaders in some countries, who fear the measures will devalue the US dollar and cause excess capital to flood into their economies, providing unwelcome fuel for inflation.

The US dollar was boosted by signs economic recovery in the US is gathering momentum. Retail sales rose more strongly than expected during October, increasing by 1.2% on the month and by 7.3% year on year. Total sales were boosted by strong growth in vehicle sales, and the news cheered investors looking for evidence the economy is continuing to recover.

The National Retail Federation expects sales during November and December to increase by 2.3% year on year, their strongest annual increase since 2006. Meanwhile, consumer confidence rose to its highest level for five months during November, boosting hopes the economic recovery will remain intact. Meanwhile the US trade deficit contracted more quickly than expected during September, boosted by strong growth in exports and a weak dollar that makes US products cheaper for overseas buyers.