Last week, Jeremy Siegel, professor of finance at the Wharton School, made the bullish case for equity valuations in this column. No less important is the current state of the US economy, including corporate performance. Simply put, the economy is displaying an improved balance between sectors, ongoing productivity gains, and mild-mannered inflation. Recession seems unlikely and a long period of moderate profit expansion would benefit equities.

The US economy is decelerating but, critically, it is also rotating. This is what economic cycles do. The sources of economic energy are shifting; this has been exacerbated by the earlier dramatic growth in housing. Residential construction is shrinking at a 15 per cent annual rate, contributing heavily to the recent below-trend 1.3 per cent real GDP figure. Yet, weak housing alone is unlikely to derail the economy. Even within housing, there are wide divergences depending on factors such as location and borrowers’ balance sheets.