There is bad news from the US economy. Its growth slowed down to 2% on a year-on-year basis in the third quarter of 2021. This is a sharp decline from the huge 6.7% increase seen last quarter. A host of reasons have slowed it down including rising coronavirus cases and rising inflation.
What does a US slowdown mean for FTSE 100 stocks?
There is little denying the fact that the US has a big impact on stock markets around the world. It is the biggest country economy and many FTSE 100 companies have significant interests in the economy. This means, that there is a very real impact of a slowdown in the US economy on stock markets in the UK. Besides this, lower economic activity in the US can also impact global investment activity, which may impact asset markets around the world.
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There are two ways of looking at the latest economic weakness. The first is to see it as a one-off slowing in growth, but assume the US is on a strong growth trajectory otherwise. The second is to see it as a sign of things to come. It may suggest that the recovery could continue to remain weak in the next quarter as well. Whichever of the two may be the correct line of thinking, as an investor I have to prepare for both scenarios. Here are my FTSE 100 picks based on these.
FTSE 100 stocks to buy on dip
If this is a one-off growth drop, then this might just be a good opportunity to buy FTSE 100 stocks that have a strong US presence. Consider the examples of construction related stocks CRH and Ashtead. Both companies get a substantial portion of their revenues from the US market. And it is little surprise that today both their prices have fallen a bit.
As I write, Ashtead is down by almost 1%, while CRH is down by 0.5%. But over the past year, both have done well. The Ashtead share price has more than doubled while the CRH price is up some 30%. I think the small correction in their prices today is exactly the opportunity to buy these rising stocks for my portfolio.
Utilities are good defensives
However, if the growth slowdown is a sign of things to come, my best bets are defensive stocks. These include the likes of healthcare companies and utilities. One such that I like is the FTSE 100 water and wastewater company United Utilities. It is financially healthy, has a good dividend yield, and has even shown a rising trend in share price over time. There are others for me to consider too, like National Grid and SSE, both of which generate energy.
Whichever of the two scenarios play out, I think it is a good idea for me to have a diversified investment portfolio for the long term. If growth slows down, I can depend on my defensive buys to say the day. And if growth is high, the cyclical stocks will benefit the value of my investments.