The US is the largest economy in the globe, despite recurrent news about its recent poor performance. The US still holds the top spot for producing the largest amount of goods and services. But the most important aspect of the US economy is the US consumer. With two-thirds of US GDP accounted for by consumption, it is the largest single chuck of not only the US, but the entire global economy.
The top-down approach to investing, used by macro investors and funds, stresses the necessity of understanding economic trends. Fundamental company or industry analysis may hold the key to stock picking, but economic analysis is essential for the primer driver of portfolio returns – asset allocation i.e. which assets to buy and how much. Also, our stock picks might be excellent, but an overall downturn may easily wipe off all profits earned over many quarters. Economic analysis and forecasting can help us avoid such a fate, by signaling the common investor to move out of stocks into safe haven investments like cash and or even gold.
Trends in GDP, Unemployment, Interest Rates, Inflation and Productivity are only a few of the indicators that need to be analyzed. Understanding the factors that move these larger, and more well known, numbers are what we specialize, providing a time advantage to our clients when they want to create or modify their portfolio, keeping the big picture in mind.