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US market valuations not expensive, opportunities in niche segments still attractive

Science of Alpha from Safety

US market valuations not expensive, opportunities in niche segments still attractive

US market valuations not expensive, opportunities in niche segments still attractive

Concentrate on segments such as information technology, consumer discretionary, consumer staples, communications and industrials

Despite the COVID-19 crisis, the US economy did quite well in 2020. According to the Fed’s Economic Projections on Dec 16, 2020, the real GDP for 2020 is expected to be -2.4 percent and the nominal GDP is -1 percent. This is an excellent economic performance given the lockdowns, stay-at-home advisories and business and supply-chain disruptions that happened during the year.

Further, the US Fed expects the economy to continue doing well over the next three years. The US GDP (nominal) is expected to grow at 6 percent for 2021, 5.1 percent for 2022, 4.4 percent for 2023 and 3.8 percent beyond that.

However, there is a concern that the US markets are in a bubble. This hypothesis can be resolved analytically by looking at the valuation ratios to begin with. This will also lead us to potential investment niches that are more promising.

 

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