Five years ago, Omar Aguilar never thought he’d see the U.S. as the leader of global economic growth.
“When you think back five years ago, I never thought that the U.S. was going to provide that leadership in terms of global growth – mostly because our demographic,” said Aguilar, senior vice president and chief investment officer of equities at Charles Schwab Investment Management. “You always think about emerging markets driving a lot of that, particularly China.”
But, that’s exactly what he’s seeing today and what he expects to continue to see in 2015.
“I think the U.S. economy continues to provide leadership in terms of stability for the rest of the world,” he said. “When you look at the rest of the world, Europe and Japan are fighting deflation. They’re basically still in the process of how they can provide more stimulus programs so they can support the economy and stabilize their economy.”
Meanwhile, in the U.S., the market has adjusted well to the end of bond buying by the Federal Reserve and is currently experiencing a strong dollar, growing job rate and stabilizing economy.
During a conference call Friday morning, Aguilar shared some of the key trends he saw in 2014 and some of the trends he expects for next year.
“We saw already a very poor growth component going into 2014 globally,” Aguilar said. “I think emerging markets have been a very disappointing asset class in the last year and a half. I think going into next year, we will be very happy if we can see at least 3% global GDP growth.”
Earlier this year, as tensions grew in the world with Russia and Ukraine, Aguilar said this concept of “global decoupling” started, in other words a decoupling of the Federal Reserve and other central banks around the world.
“This is going to be the first time we see that since the major crisis in 2008, where the old central banks around the world were doing the same thing – providing a stimulus, providing liquidity, providing a safety net for the different economies,” Aguilar said. “What we have seen at the start of this year and going into next year is the significant decoupling from what the Federal Reserve is doing in the U.S. given where we are in our economic cycle and the situations in Europe, Japan, and emerging markets.”
What started this year, Aguilar said, was “the fact that the U.S. economy shows signs of strength, while the rest of the world was showing signs of deflation and a lot of weaknesses.”
Looking forward, Aguilar said, “we’re going to see more of that [change] in behavior” among central banks around the world.
The only immediate consequence to global decoupling that Aguilar expects is that the dollar will continue to be very strong.
Aguilar said the dollar should continue to stay strong in 2015 for several reasons.
He cited the stability of the U.S. economy, the potential for higher interest rates relative to the rest of the world, and most recently lower commodity prices.
“Lower commodity prices, lower oil prices usually translate into potentially stronger currencies, particularly in the U.S.,” he added.
Aguilar sees a strong dollar having an influence on overseas mergers and acquisitions in 2015.
“That means the economic conditions in the U.S. in combination with the stronger dollar in combination with increasing capital expenditures for companies in the U.S. will provide opportunities for potentially buying companies in Europe, buying companies in Asia,” he said. “I think we’re going to see some of that, which will provide a very good support for the U.S. markets.”