The American economy is facing significant challenges as the Federal Reserve continues to raise interest rates, leading to fears of slower growth and inflation. However, Jose Rasco, chief investment officer of the Americas at HSBC’s wealth division, believes that certain key drivers will help sustain economic growth. One such driver is technology deflation. While advancements in technology, such as artificial intelligence, have been celebrated for their impact on profitability, Rasco emphasizes the role of technology in curbing inflation. Historically, technological disruptions have put downward pressure on prices by streamlining inefficiencies and reducing the need for labor. This aspect of technology is often overlooked when discussing its impact on the economy, but it plays a crucial role in shaping inflationary trends.
Another key driver identified by Rasco is health care innovation. Technological advancements have revolutionized patient care and administration in the healthcare sector. Better technology has led to improved surgical options, resulting in better outcomes for patients at potentially lower costs. Additionally, technological innovations have transformed billing and insurance processes, cutting out middlemen and reducing coverage expenses. These advancements in healthcare technology not only benefit patients but also contribute to overall cost reduction and efficiency in the industry, thereby supporting economic growth.
The trend of near-shoring, also known as on-shoring or re-shoring, is gaining momentum as corporations move their production facilities closer to the U.S. market. This shift is driven by factors such as supply chain disruptions due to the COVID-19 pandemic and escalating tensions between the U.S. and China. Near-shoring represents a reversal of the off-shoring trend, where companies relocated factories overseas to cut labor costs. According to Rasco, near-shoring is bringing significant investments to the U.S. and Mexico, benefiting companies in the region. This trend is expected to bolster economic growth and create new opportunities for businesses in the Americas.
Re-Industrialization of the U.S.
Rasco also points to the re-industrialization of the U.S. as a key driver of economic growth. Research and development spending as a percentage of total gross domestic product is at a record high in the U.S., indicating a renewed focus on industrial innovation. Legislation such as the CHIPS Act supports this industrial resurgence by incentivizing companies to invest in technology and enhance productivity. Rasco sees this industrial boom as a significant contributor to the overall economic growth of the country. American companies are prioritizing technological advancements to improve efficiency and profitability, driving the re-industrialization of the U.S. economy.
Presidential Election Year
While not directly related to investment trends, Rasco also considers the impact of presidential election years on the stock market. Historical data shows that U.S. stocks tend to outperform during presidential election years, with an average gain of 11.6% compared to 10.3% in other years. This short-term optimism towards U.S. stocks during election years underscores the potential influence of political events on financial markets. As the U.S. prepares for the next presidential election, investors may consider the historical trends and market performance during election cycles.
The American economy is navigating through challenging times with increasing interest rates and inflationary pressures. However, the presence of key drivers such as technology deflation, health care innovation, near-shoring, and re-industrialization provides a strong foundation for sustained economic growth. By leveraging these drivers and adapting to changing market conditions, the U.S. economy can overcome current challenges and thrive in the years to come.