2023 has surprised many analysts. Very few, if not anybody, expected the main action indexes to catch up again on maximum levels registered at the end of 2021/beginning of 2022. The S&P 500 in that time reached 4.818$, Nasdaq 100 reached 16.644$, DAX reached 16.250 EUR while FTSE MIB reached 28.212 EUR.
By the end of 2023 the situation has been the following:
– S&P 500 —> 4.775$ (-0,89%)
- Nasdaq 100 -> 16.848 $ (+1,22%)
- DAX -> 16.930 € (+4,18%)
- FTSE MIB -> 30.481 € (+8,04%)
In the past two years, all losses have been evened out, where Nasdaq 100 and DAX at historical highs. While the other main european indexes which include IBEX 35, CAC 40 and FTSE MIN, despite having caught up since the past years’ drawdown, differently from DAX they have not raised back to the pre crisis sub-prime levels of 2008.
What do data tell us today at a macroeconomic level?
If we observe the main indicators monitoring production levels in the manufacturing sector, specifically the PMI (Purchasing Manager Index), we can notice how in the USA, which since October 2021 its index has decreased gradually, bringing under threshold by 50 from September 2022, indicate a definitive contraction on the offer level in relation to a decrease in new orders, caused by a overproduction case in 2021 with the recovery post Covid, which has increased the warehouse stock for many production companies. On the opposite, the consumes have been growing, from what it appears based on the third trimester of 2023. In september the consumes in the USA have recored a new record of 15.461,28 billion dollars (10% more than the end of 2019).
The same data in the European zone, sees the consumer trends in slow rise (+0,41% than pre-Covid times).
At the same time, data on unemployment in the USA, are around the lowest recorded ever (3,70%), denoting a professional market still very dynamic and strong. Despite many firings from Big Tech companies, the employment rates have been very high.
This explains how consumer trends have not been affected that much, together with the fact that the hourly rate has increased by 5,30% per year since January 2020.
In the European zone, the aggregate data is at its lowest ever too, 6,40%. While the average pay has increased on a yearly basis by 3,50% in the past four years.
Exports and imports
Exports in the USA are at their highest levels ever, as per October 2023 it is 258,8 billion dollars, in slight decrease than September (-2,6 billion dollars). The imports have risen to 323 billion dollars, 489 million more than September (even though it is in contraction by 7,23% than the highest rates recorded in March 2022).
In the Euro zone exports are around 246,9 billion euros in October 2023, 2,4% less than the previous month. Imports have decreased since September 2022, from 297 billion euros to 235,8 (-20%).
The commercial scale remain negative in the USA and positive in the Euro zone.
Inflation
The sudden increase in the cost of living has started around May 2020, regaining strength thanks to consumer trends. In the USA with 100$ one could buy what in October 2023 was possible to buy with 120$. A rise of 20% in a 3-year span. The price increase on an annual basis, in the time frame taken into consideration has been of 5,15%.
What can we expect from 2024?
Forecasting is always tough, especially when, besides monitoring indicators, one needs to have a clear understanding go the geopolitical situation as the wars going on today in Ukraine and Middle East put pressure on both primary needs exchange, which influence the global economy, and the commercial exchanges which can experience pressures in case of embargo application or could be interrupted or delayed which could cause slow down production and have repercussions on the offer side making the prices rise on primary needs.
The current situation puts threats on the inflation theme, especially considering OPEC+, in addition, it keeps going on with is program to cut volunteers of mass production for a total of 2,2 million barrels per day, aimed to support stability and balance of the oil markets. Such volunteer cuts – as per a note – are calculated starting from the production level required for 2024 to which add volunteer cuts previously announced in April 2023 and consequently prolonged until the end of 2024. Further volunteer cuts have been announced by the following OPEC+ states: Saudi Arabia (1M barrels per day), Iraq (223k barrels per day), UAE (163k barrels), Kuwait (135k barrels), Kazakistan (82k barrels), Algeria (51k barrels), Oman (42k barrels) starting from January 1st until the end of March 2024. Successively, to sustain market stability, these cuts will be withdrawn gradually based on market conditions.
In general the energy sources, besides oil, are forecast to increase in 2024. The rest of the commodities which include metals and industry materials, constructions and agricultural goods, are reviewed to decrease, exception made for gold, copper, iron, aluminum, tin, and some rare metals (especially those used in renewable technology production), wood, salmon, meat, cocoa, sugar, coffee and tea.
Debt and monetary politics
Considering the debt levels to which the main world economies are exposed to and the difficulties to sustain it (the beloved QE which has increased the Ponzi scheme legalising it to which every government refers to feeds thanks to the continuous increase of liquidity in the system), it doesn;t seem to have an escape plan if not creating new debt cancelling any chance to reduce the balance for central banks (QT) or to attract new investors increasing interest rates and keeping them high for longer. This last option could weigh more on societies’ balances, or for those who need financing to maintain operations.
The monetary politics has led a fundamental role to contain inflation. There is also a need for fiscal politics aligned to monetary politics objectives to contrast potential anti-inflationary spirals. These last few could also generate from a consistent increase in salaries (with reference to solutions adopted in the USA in the last few years).
The forecast on cuts have been mentioned to happen aeon the last trimester of the year, as far as FED is concerned, while BCE has not expressed itself yet on this matter.
If FED expects to lower taxes by the end of the year, it could mean that a stronger contraction is expected in the real economy so that it justifies a cut, which incentivises and promotes access to credit (this means ignoring the QT).
If the risk on one side, for developed countries, is to enter a stagflation situation, anticipated by a slow growth which will bring an increase in unemployment in the context of chronic inflation (well above 2% target). The potential winner in the medium long run could be BRICs group and the reinforcement of emerging countries.
Conclusion
The action market on today’s level are prevalently overvalued and a more consistent decrease of consumes would kick start an important correction. Today, the trade off leans more on the obligations, more appealing in terms of risk/revenue, as much as the implicit risk could be less considered than its real value (the lowest ever level of Credit Default Swaps are misleading than the real scenery).
China’s real estate, after having collapsed with Evergrande case, has seen a strong deceleration and is in a deflation situation, where demand struggles recovering and interest rates are around 3,45%, unemployment is at its lowest (5%) than the past five years. Besides, the chinese government has a big share of private debt, the relation between debt at a governative level and PIL is 80% (against 129% for the USA and 91% for the Euro zone).
The correction experience by the Chinese stock exchange in the past two years has lowered the market multiples for many companies, and today there are may opportunities at low fair vale prices.
In a context of today’s market the main refuge good, especially gold, are expected to increase. This last one could experience some pressure to then rise again.
At the same time another asset class able to generate interesting revenues is Bitcoin and the main exponents present in the crypto world. In April this year the halving of Bitcoin is expected and seen the elevated demand, it could act as a catalysed for a new bull run.
Wanting to remain exposed to the stock market, the main opportunities are hidden, as per my advice, in the sectors which experienced a collapse in the past years, such as digital payments or exposing to sectors with high tech presence and Megatrend such as Space Economy, the Blockchain, renewable energies (hydrogen, electric and wind power), Data Center and digital infrastructures as well as rare metals.
