The US stock market has been on a tear recently.
Both the Dow Jones Industrial Average (INDEXDJX: ^DJI) and S&P 500 Index (INDEXSP: ^INX) hit fresh all-time highs last Friday.
The Dow is also up 11.4% year-to-date, closing above 42,000 for the first time, while the bellwether S&P 500 Index has surged more than 20% year-to-date.
As such, investors may be wondering if the US market is still good to invest in.
Together with the NASDAQ Composite Index (INDEXNASDAQ: ^IXIC), the US market has a wide variety of different growth stocks that you can invest in.
Let’s take a closer look to determine if investors should park some money in US stocks.
Optimism over a big rate cut
There’s a good reason why US stocks are breaking new highs.
The US Federal Reserve just announced that it will cut interest rates by half a percentage point, its first reduction since early 2020.
This decision came after officials acknowledged that inflation was under control and heading towards the central bank’s target of 2%.
The move was also meant to prevent the economy from slowing too much and to keep the labour market healthy.
Lower interest rates can help to spur economic growth as more businesses borrow to expand their operations.
Consumer spending should also improve when people spend less on servicing their mortgages and loans.
The good news is that rates are poised to head lower, with the Federal Reserve pencilling in a full percentage point reduction in 2025 with a further 0.5 percentage point cut in 2026.
This monetary policy is favourable for stocks as businesses can now borrow at cheaper prices and grow their sales and profits in tandem with stronger demand.
A wide variety of sectors
The interest rate cut is just a convenient catalyst for growth stocks.
The US market is also attractive in that you can find a wide variety of businesses that may not exist for you to invest in when it comes to the Singapore market.
For instance, the NASDAQ is dominated by global technology companies such as Nvidia (NASDAQ: NVDA), Alphabet (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL).
The market also contains cybersecurity stocks that investors can invest in to ride on the wave of digitalisation and the need for better online security.
Some examples include Zscaler (NASDAQ: ZS), Crowdstrike (NASDAQ: CRWD), and Okta (NASDAQ: OKTA).
And if you are looking for dominant software-as-a-service companies, you will also be spoilt for choice.
There is Salesforce (NYSE: CRM) offering its platform for customer relationship management, Datadog (NASDAQ: DDOG) which provides server and database monitoring, and Snowflake (NYSE: SNOW) which offers cloud computing data storage and analytics.
Investors will be spoilt for choice with the breadth and variety of stocks that they can include within their investment portfolios.
Stocks displaying healthy growth
Apart from variety, investors should also set their sights on stocks that continue to display healthy growth.
Remember that growth in profits and cash flows will result in a higher share price over time, netting you attractive capital gains.
For instance, Meta Platforms (NASDAQ: META) reported an impressive set of earnings for the first half of 2024.
The social media behemoth saw revenue jump 22% year on year to US$39.1 billion while net profit surged 73% year on year to US$13.5 billion.
Cybersecurity firm Crowdstrike reported a 32.3% year-on-year rise in revenue for its fiscal 2024’s first half ending 31 July 2024.
Net profit leapt tenfold year on year from US$9 million to nearly US$90 million.
Lululemon (NASDAQ: LULU) also reported an impressive set of earnings.
The athleisure apparel company saw revenue rise 8.8% year on year to US$4.6 billion while net profit increased by 13% year on year to US$714.3 million for the first half of fiscal 2024 ending 31 July 2024.
Size your position accordingly
If you feel that stocks are getting expensive in the US market, you can always size your position according to the risks and rewards.
A smaller position can help you to control your exposure and allow you time to find out more about the business.
As you gain confidence and comfort in the business, it’s not too late to add more to your position over time.
By doing so, you can start with a small initial position and then slowly add to it as the business does well.
Get Smart: Ripe for the picking
Although the US market may seem expensive, there are good reasons for parking some of your money there.
Lower interest rates will kick off a virtuous cycle of demand and spending, helping businesses to report higher revenue and profits.
There is also a wider variety of stocks to choose from, thus allowing you to gain exposure to sectors that may not be found in the Singapore market.
Certain companies are also displaying healthy growth even before interest rates were cut.
US stocks are now ripe for the picking – all you need to do is to ensure you control your risk by sizing your position accordingly.
By slowly building up a portfolio of solid growth stocks, you can better prepare yourself for retirement.
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Disclosure: Royston Yang owns shares of Apple, Alphabet, Lululemon, and Meta Platforms.
