HSBC Wealth Investors Say Four Major Themes Will Keep U.S. Economy Strong | Wilnesh News
Jose Lasco, chief investment officer for the Americas at HSBC’s wealth arm, said a handful of drivers will keep the U.S. economy humming. Even as rising borrowing costs weigh on businesses, they should boost the country’s financial health. In the face of the historic tightening of monetary policy over the past two years, the U.S. economy has demonstrated extraordinary strength, bolstering confidence that the Federal Reserve will achieve a soft landing. But as a longer-term higher interest rate environment persists, concerns persist about slowing growth and above-target inflation leading to “stagflation” or even an apparent recession. “From a business cycle dynamic standpoint, the Fed raised rates and nothing happened — that’s how the market viewed it,” Rascoe told CNBC Pro at the firm’s Wealth Center in New York City. “That’s nonsense. On the cyclical front, Rascoe expects growth to cool as the impact of rising interest rates is fully felt. But he believes longer-term drivers related to technology, health care, nearshoring and industrialization could mitigate the impact of rising interest rates and help the economy avoid contraction. Lasko said the final growth rate will remain above 1.7%. He said Fed policymakers should agree because rising interest rates will ultimately lead to a small increase in unemployment. “These four themes suggest to me that this is how we avoid a recession,” said Lasko, a Lehman Brothers and Merrill Lynch alumnus. “In my opinion, if we weren’t, we might be more on the verge of a recession.” Lasko broke down four key drivers: Technological deflation While technological advancements like artificial intelligence have been criticized by investors for their bottom-line impact, he said cheers, but many are not fully aware of its role in curbing inflation. Technological disruption has historically put downward pressure on prices because it has the potential to streamline inefficient tasks and cut labor, Lasko said. That could help inflation as the Fed works to get price growth back below the central bank’s preferred 2% rate. “Everyone talks about the technological revolution, but refuses to… talk about the deflation it brings,” he said. Healthcare Innovation Technological advances can also advance health care — in patient care and management, Rasco said. On the care side, Lasko said better technology has created more options for surgeries that can provide better results and are less expensive. Beyond that, the market is also excited about blockbuster weight-loss drugs. He also pointed to the impact on billing and insurance, as technology can eliminate middlemen and reduce insurance costs. Nearshoring is a trend that goes by many names—onshoring, nearshoring, reshoring, and friend-shoring—and refers to companies moving production back to or closer to the United States. However, regardless of the name, it’s important for companies to good news. Driven by supply chain disruptions caused by the coronavirus and rising tensions between China and the United States, this is essentially the opposite of offshoring, in which a company moves factories away from home to save on labor and other costs. The theme “is to bring a lot of money and investment to the United States and Mexico,” he said. Lasko said U.S. reindustrialization research and development spending as a share of gross domestic product is at a record high, evidence of the reindustrialization push. Combined with legislation like the CHIPS Act, Rascoe believes an industrial boom could boost the entire U.S. economy. “American companies are investing in technology to increase productivity and profits,” he said. Bonus: A presidential election year While not exactly an investing trend, Rasko also noted that a large part of his short-term optimism about U.S. stocks stems from the upcoming presidential election. Data shows that U.S. stocks tend to outperform in presidential election years. Going back to 1926, BlackRock found that the average return in election years was 11.6%, 1.3 percentage points higher than the 10.3% average return for all years. As of the end of 2023, HSBC Asset Management managed approximately US$707 billion in client assets, the bank said.