Fidelity chief investment officer Dominic Rossi said US economic growth “will surprise on the upside” generating three per cent-plus growth.
Mr Rossi also said the speed of improvement in the US federal budget deficit has been remarkable.
“Since 2009, the fiscal deficit has shrunk to around US$600 billion from US$1.5 trillion - it is not implausible that President Barack Obama will finish his term with a fiscal surplus,” said Mr Rossi.
He said the US equity market will therefore resemble something similar to the late 1990s, during the Clinton fiscal surplus, where equities were well supported by liquidity.
Mr Rossi disputed the counter-argument to buying US equities, which highlights the fact corporate profitability is at record highs while the price-earnings ratio is 16 times or 22 times if you “cyclically adjust for peak profits”.
“Profit margins may well be at record highs, but they can move higher,” said Mr Rossi.
He believes the “distribution of profits between capital and labour in the US is going through a fundamental shift”.
“It’s hard to see why margins need to mean revert; for this to happen, labour’s share of profits would have to move higher,” he said.
“Unless we go back to highly unionised workforces, which is unlikely, profits are going to remain at high levels.”
Mr Rossi said the US could expect to see some political pressure if labour’s share of profits do decline further, but expects the overall outlook for corporate earnings to remain favourable.
“Combined with healthy liquidity, these two drivers should sustain a multi-year bull market in US equities,” he said.
“I believe the S&P 500 could move to 2,000 to 2,300 from its current level.”
