11 Aug 2010 | World

Investment Prospects for USA, the World's Largest Economy 

The US has always been regarded as an important investment market.  It’s the world’s largest economy, with a GDP in 2009 in the region of $14 trillion. That’s around one quarter of gross world product.

Commercially, the US stock market is both large and liquid, and is home to some of the world’s best companies and strongest brands.

But how has it fared recently and is it still an attractive proposition?

The Federal Reserve issued a press release at the end of April which suggests that economic activity continues to strengthen and that inflation is likely to be subdued for some time.  In June however when the Fed voted to keep US interest rates at their historically low level of between 0% and 0.25%, Fed chairman Ben Bernanke said “The pace of economic recovery is likely to be moderate for a time.”

Yet, many have said that the US has emerged from this recent economic downturn as the powerhouse of the developed economy.  Is this a case of first in first out?  It was estimated that the US economy grew at an annualised rate of 3.2% in the first three months of 2010, compared with 0.3% over the same period here in the UK.

There are lots of ifs and buts.  Small businesses are showing signs of recovery and expansion.  There has been an upturn in mergers & acquisition activity, which usually signals a belief by companies that things are looking up.  Job numbers are improving too, but there is still a degree of uncertainty. Housing data is promising although we do feel there is still some nervousness regarding continued developments due to the end of the homeowner tax credit in June.  Growth in household spending has picked up albeit subject to the dampening effects of high unemployment, only slight income growth and tight credit.  And, there are still concerns of contagion over the European sovereign debt crisis.

On the whole, at Baillie Gifford we believe there are opportunities in American stocks.  At the end of May this year, our largest investment trust Scottish Mortgage had almost 30% of its portfolio in the US and its largest holding was the online retailer Amazon.  James Anderson, manager of Scottish Mortgage said “Where America has remained a land of opportunity in recent years has been in technological innovation.”  The US has some of the best technology brands the world has to offer, companies which have global franchises and extremely strong market positions. With this in mind, the Trust’s largest sector holding at the end of May was in Software & Computer Services.  Other US holdings in the Trust included the online search engine Google and the technology company Apple.


Baillie Gifford feels that Wall Street’s short termism and tendency to undervalue sustainable growth means that there are currently attractive, exploitable opportunities for active, long term, growth stock investors.


Author: Stuart Conlan
Stuart is the Marketing Services Manager at Baillie Gifford.  He graduated BA (Hons) in Business Studies from Edinburgh Napier University 1993 and is an Associate Member of the Chartered Institute of Marketing and a Member of the CFA Society of the UK.   Stuart joined Baillie Gifford in 2003.


The views that are expressed in this article should not be taken as fact and no reliance should be placed upon these when making investment decisions. They should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

This article contains information and opinion on investments that does not constitute independent investment research and is, therefore, not subject to the protections afforded to independent research.

Please remember that changing stock market conditions and currency exchange rates will affect the value of investments and any income from them. Investors may not get back the amount originally invested. Exposure to a single market and currency may increase share price movements.