America’s faltering economy is generating dismal news: creeping unemployment, soaring inflation, a slumping housing market, and banking difficulties. Despite this, since the start of the year, America has been the top-performing major stock market — although investors have lost money.

This may seem perverse, given its central role in the credit crunch, but there is historical precedent: typically, America performs well in an election year, and its stock market has tended to lead others out of a downturn. The market also has the tailwinds of a strengthening dollar and sliding oil price supporting it. So is now the time for investors to re-examine American stocks?

A stock market historian, David Schwartz, who famously predicted both the slump in the Nasdaq after 2000, and the fall and rise after the September 11 attacks, is buoyant. “U.S. markets generally do well in an election year, particularly in the second half, and it looks like the trend is continuing.”

Mr. Schwartz points out that during the last two big stock market downturns — between 1972 and 1974 and between 2000 and 2003 — America hit its nadir three to six months before any other market. He believes this is likely to happen again. “The U.S. economy is faster-moving than European economies. The statistics get released faster, and the policy response is quicker.”

There are early signs that America’s financial history is repeating itself. The main stock market index, the S&P 500, has dropped only 11.5% since the start of the year, compared with 15.5% for the FTSE100 and 14.1% for the Nikkei. This outperformance has accelerated in the past three months. But is it likely to last?

On initial examination, the economic picture still looks grim. Although the American economy grew 1.9% in the last quarter, meaning it is not yet technically in a recession (which requires two quarters of negative growth), most fund managers agree that one is imminent.

“In terms of all the indicators we are seeing, the U.S. is in a recession. The payroll figures show rising unemployment. Corporate profits are down and the housing market is falling. All the drivers of the initial economic weakness are still present,” a fund manager from the Threadneedle American Equity fund, Andy Hollyman, said.

Consumer spending, however, hasn’t been as weak as expected.

“Consumer spending is key to how quickly the economy bounces back. Everyone has predicted a downturn, yet it hasn’t slowed down dramatically, even now,” the manager of the Neptune U.S. Opportunites fund, Felix Wintle, said.

Crucially, the oil price has now fallen back from $145 a barrel to about $115. For oil-thirsty Americans, that makes a big difference. The co-manager of the Martin Currie North America fund, David Forsyth, says the pressure has eased. “Oil drove inflation on the way up, and as it comes down it will have a lagging effect,” he said. Inflation in 2009 is now expected to dip back to 2.8%.

The dollar is also on an improving trend, having fallen from more than $2 against the pound earlier this month to its current level of $1.86. Previously, any money gained on investment returns was lost in the currency conversion.

As a result of all this, American stock markets look set to deliver markedly improved returns for investors. “The U.S. market has tended to be a difficult sell, and people have been right to be underweight, largely because of worries over the quality of profits and the weakness in the dollar. These factors are fading away,” Mr. Hollyman said.

He says that there are now “fantastic opportunities” to pick up stocks on a long-term basis. Mr. Forsyth, for example, likes the technology sector, particularly Google and Apple, and is maintaining his position in the defense sector with companies such as Lockheed Martin.

Aidan Kearney, of Credit Suisse Asset Management, has been increasing his holdings in America. He says: “There have been tax rebates and interest rate cuts. The great strength of the US is its ability to reinvent itself. “

That said, he recognizes that the economy is still not in great shape, and some companies will struggle to sustain profits. As a result, he has chosen fund managers who take a targeted approach to share selection. This is a departure from the typical approach, where the theory has been that the U.S. market is so efficient that it is difficult for active managers to outperform, and investors are better off in exchange-traded funds or other trackers that reflect stock market performance.