Markets may anticipate a "no landing" scenario, but conflicting signals persist. Equities rise while consumers struggle financially, and potential headwinds loom over corporate profits amid falling interest rates. Meanwhile, Big Tech flourishes and China's growth slows.
Navigating these crosscurrents requires perspective. Amidst the noise of short-term market moves, we turn to ten key statistics framing the 2024 investment landscape.
These numbers touch on market concentration, valuations, debt levels, demographic shifts, and the increasing impact of climate change. By examining these factors, we aim to illuminate both risks and opportunities in uncertain times.
1. 25 per cent
An optimistic scenario looms with 25 per cent S&P EPS growth forecast over the next two years, even as markets expect rate cuts from the Federal Reserve. However this is an improbable combination never seen after a tightening cycle.
2. 95th percentile
The valuation spread between growth and value stocks hits extremes in the 95th percentile, indicating a pronounced value-over-growth market bifurcation. From these levels growth has been more expensive than value only 5 per cent of the time.
3. $13.06 trillion
As of 5 March 2024, the "Magnificent Seven" tech giants, with a combined market cap of $13.06 trillion, comprise a staggering 29.5 per cent of the S&P 500's total $44.28 trillion market cap. This concentration has resulted in the S&P's 35 per cent return since 2022, significantly outpacing the 13 per cent median return of the other 493 components, raising concerns among analysts about potential risks in US and global stock markets.
4. World War 2
At over 100 per cent of GDP, US debt burdens now match levels last seen after World War 2, dramatically reducing budget flexibility and heightening default risks from any economic shocks.
5. 36,607
US Bankruptcy filings (including all chapters) totalled 36,607 in January 2024, a 17 per cent increase from January 2023 (31,176 filings). Commercial chapter 11 filings increased 22 per cent to 460 in January 2024 from the 378 filings recorded in January 2023.
6. 8 per cent
Japan's capital expenditures on goods (excluding software) grew by 8 per cent in Q4 2023 compared to the previous quarter, indicating a more bullish outlook for the economy than initial GDP figures suggested. This jump in corporate spending has led economists to revise their estimates, now expecting positive growth in the final three months of 2023, despite preliminary data showing a 0.4 per cent annualised contraction.
7. 8.4 per cent
India's GDP growth surged to 8.4 per cent year-on-year in the fourth quarter of 2023, exceeding all economists' forecasts. This unexpected acceleration, along with upward revisions to the previous two quarters' growth figures, positions India to remain the fastest-growing major economy in the world.
8. 800 million
China’s population will halve to 700 million by 2100. Nigeria (800 million) is on track to be the second largest country by population after India (1.1 billion). Africa will have five of the top ten most populous countries.
9. 18
US insurers are struggling with the increase in the annual occurrence of billion-dollar natural disasters, which have grown from around three each year in the 1980s to closer to 18 annually. This has led to unaffordable or unavailable insurance in high- risk areas, potentially slowing property markets as banks will not issue mortgages for uninsured properties.
10. 1.28
In 2000 there were over six working adults for every elderly person in China. By 2020 it was 3.6 workers and is forecast to fall to 1.28 workers by 2050. China's plummeting worker-to-retiree ratio will strain its economy and social systems, necessitating reforms to support an aging population.
These stats consider valuation, earnings, diversification and the long-term impact of demographic changes. For the near term as it stands, the established relationships between interest rates, leading economic indicators, and corporate earnings all point towards falling profitability into the second half of 2024. Time will tell, but if history tells us anything, numbers, not narrative really matters.
Hugh Selby-Smith, co-chief investment officer, Talaria Capital
