Having been buying billions of dollars worth of US mortgages and treasuries for many months now, as one commentator put it, Ben Bernanke ‘let the tapering genie out the bottle’ on 22nd May when he reminded the world that quantitative easing (QE) wouldn’t last forever. No sooner had markets digested this news, than he then gave us a timeframe to worry about. Most global asset classes have been on a downward trajectory ever since.

However, while the slowing and ultimate stopping of QE is bad news for bonds in particular, it should be good news for equities, particularly US ones, in the longer term.

But first the challenges – a dichotomy of confidence

US corporations have record levels of cash on their balance sheets, which is good for dividends and overall health of their finances, but their subdued confidence means that capital expenditure – whether that is in the form of M&A or upgrading facilities or technology – is still at low levels and is hampering growth in some parts.

For example, as Jenny Jones, manager of the Schroder US Mid Cap fund, pointed out to us recently, technology stocks have had a tough time, due to lack of capex spending, not just by businesses but by the government too.

The latter accounts for 20% of technology spend and this has come to a standstill due to sequestration. A depressed eurozone isn’t helping either as around 20% of US IT sales come from this region.

Consumer confidence, on the other hand, is at its highest level since July 2007, which is a huge positive as the US is a consumer-led economy.

The danger is that slowing or stopping QE will put a break on the burgeoning economic recovery. While no interest rate rise is expected for many months yet, the US 30 year fixed mortgage rate has already ticked upwards, which has the same effect and could dampen the housing market, which would have a knock-on effect on employment and sentiment. Bernanke is walking a tightrope: ending QE too early could risk derailing the recovery, but left too late and inflation may well take hold. QE has been the biggest financial experiment in history and nobody really knows how it will end.

And now the opportunities.

While US stocks have had a good run already, valuations are still about 25% lower than those seen when previous stock market highs were reached. And despite the market rises in the last 12-18 months, retail investor participation is still relatively low. According to a recent Gallup poll, US adult stock ownership is at its lowest level since 1998. So it’s hardly a case of everyone piling in at the top of a bull market. Cab drivers certainly were more preoccupied with the weather than the latest stock tip on a recent trip to Washington, giving more credence to this theory!

There are a number of exciting changes taking place that mean plenty of opportunities for investors. For example, healthcare is one such area, as Obamacare will come into effect in January next year. At this time, 30 million more people will be added to the pool of those insured and this represents huge opportunities for companies in the sector.

The shale gas story is also continuing. The US has been aware of shale gas for decades, but it’s only as a result of recent innovation that they have found a way to extract it. The result has already been falling energy costs. And if the housing recovery does continue it will be very beneficial to many parts of the economy.

The dollar has also held up well and many experts are predicting that the currency has seen an end to its bear run. In previous periods of a strong dollar, US equities have flourished, as the US is less dependent on exports than other major markets. Furthermore, a stronger dollar should boost returns for sterling investors.

All this suggests to me that the US market has further to go and should do well for investors longer term, even if QE comes to an end next year. It may not be an easy ride, as there are so many unknowns but, as Dan Harlow, co-manager of the AXA Framlington American Growth fund said recently: “The slowing and eventual stopping of QE is basically a Treasury bubble unwinding. When it does happen, we need to remember that it is a positive reflection on the state of the world’s biggest economy. And at the same time, money printing coming to an end may well be the catalyst for cyclical stocks to do better as growth picks up and markets normalise.”

Darius McDermott is managing director of Chelsea Financial Services