Low interest rates will boost performance of growth-related stocks

What is normal going forward? Recently, investors appear to be assuming corporate profitability and economic growth will rebound to prior levels as quickly as they disappeared. Many are assuming a ‘V-shaped' recovery and have embraced cyclically driven growth as a result.

In our minds, this misses the importance the credit bubble had on the shape of the last up cycle. Unrationed, cheap credit created significant levels of excess demand and asset price inflation in many sectors of the economy, most notably in the US housing market. American consumers withdrew this “free” money and overspent, spurring excess demand. With house prices unlikely to return to prior levels for many years, and savings rates likely to be significantly higher in future, it will be difficult to replace this spending. There are many other headwinds to the rate of economic growth –...