March 15, 2010 - Made in America
Last Thursday, the U.S. trade data was reported for the month of January reflecting a brief pause in an improving trend of export growth. On the same day, the stock market, measured by the S&P 500, moved up to a new 17-month high. The market reaction was fitting since export growth is a key
driver of the economy and profits for S&P 500 companies. In fact, exports accounted for 2.3 percentage points of the 5.9 percent fourth quarter Gross Domestic Product (GDP) growth rate, this marked the biggest contribution to U.S. GDP in 13 years. Exports of American-made goods now matter more than ever to investors.
Also, last week, President Obama took action to support his goal of doubling U.S. exports within five years by signing an executive order to ‘’marshal the full resources of the United States government behind American businesses that sell their goods and services abroad’’ under his National Export Initiative. The export strategy will strive to improve access to financing for domestic exporters and help them promote their products overseas particularly in rapidly growing emerging nations such as China, Brazil, and India.
Some pessimists argue that America can’t be a leading exporter since we don’t make anything here anymore. However, they are wrong on both counts. It may come as a surprise to some, but the United States is the world’s biggest manufacturer. In fact, the United States is the largest manufacturer by a long shot, making up 20% of the world’s total manufacturing output. The United States manufactures almost twice as much as China, double what Japan makes, and almost three times what is produced in Germany.
If that seems a little hard to believe then think of it this way: exports are measured based on the total value of what is produced, not merely the quantity. High-value items made in the United States and exported to customers in other countries include machine tools, medical equipment, computer software, pharmaceuticals, commercial airplanes, defense products, and satellites among many other products. It is the value of these exports that matters more than the quantity. After all, one U.S. built airliner is worth a lot of Chinese made toys. The United States is a leader, ranking among the top three nations in terms of exports, alongside China and Germany.
American-made goods have become more attractive for overseas buyers following a decline in the dollar last year. It has fallen about 11% against the currencies of the biggest U.S. trading partners from a five-year high reached on March 9, 2009. The dollar decline gives U.S. companies a competitive advantage in global markets.
Even better, the United States sells more to emerging than developed countries. According to the Department of Commerce, Emerging Markets now make up a little over 50% of U.S. gross exports. These end markets are growing much more rapidly than domestic or foreign developed markets. Developed markets like the Eurozone and Japan are struggling with stalled recoveries, as fourth quarter annualized Gross Domestic Product (GDP) in the Eurozone was a mere 0.1% and in Japan was only 0.9%. Much stronger rates of economic growth can be found among emerging market nations such as China, Brazil, and India.
Exports matter to investors because S&P 500 companies derive about 40% of their revenue from foreign sources and global markets. Sectors with a high proportion of export-driven sales include Information Technology, Industrials, Energy, and Materials. We continue to favor these sectors of the
stock market.
IMPORTANT DISCLOSURES: The opinions voiced in this material are for general information only and are not intended to provide specifi c advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your fi nancial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Investing in international and emerging markets may entail additional risks such as currency fluctuation and political instability. Investing in small-cap stocks includes specific risks such as greater volatility and potentially less liquidity.
Stock investing involves risk including loss of principal Past performance is not a guarantee of future results.
Small-cap stocks may be subject to higher degree of risk than more established companies’ securities. The illiquidity of the small-cap market may adversely affect the value of these investments.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise and are subject to availability and change in price.
© LPL Financial
Refer Article to a Friend >
--------------------------------------------------------------------------------------------------
Back to archives
|
