"Like the proverbial canary dying in the coal mine, a handful of UK companies are becoming short of breath as the US economy slows," says Chris Hughes in the FT. Wolseley, Tomkins and Aga are among those who have recently revealed that their US markets are looking wobbly. "It's tempting to explain these away as isolated cases however, wherever you look, the evidence of a US slowdown is mounting." So where should investors put their money if they want to be safe?
The obvious candidates to avoid are companies reliant either on discretionary spending by America's consumers or on the buoyancy of its housing market. Instead, seek out defensives' high-quality companies with earnings that will remain fairly stable in a slowdown, such as food retailers, pharmaceuticals and utilities. Data from the past five US economic cycles suggest that such defensive UK stocks begin outperforming the wider market about three months before US interest rates peak.
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