By Craig McAvinue – 5 March, 2024
“It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.”
Data table is from Google Finance
Two months into 2024 and, with the exception of the FTSE 100 laggard out of the UK, the bulls are being unleashed across global markets, as we see strong growth across the board.
Data table is from Google Finance
As markets have soared, the US dollar has looked less attractive and the greenback experienced a pull back against its European counterparts, although it enjoyed some gains in Asian trading.
With the positive growth in the last few months of 2023 marching confidently into 2024, we’re seeing these markets at all time highs, notably the S&P 500 and the Nikkei.
During February, the S&P 500 breached another landmark value when it soared above the 5,000 level and now sits at its highest point in history.
The Nikkei seems like a runaway train at the moment. Roaring ahead with a 17% growth rate already in 2024, it also hit an all-time high at the end of February, and during the last couple of days has also risen over 40,000, itself a landmark threshold.
These two markets tell a somewhat different story when looking at how we got there.
Looking back, the S&P 500 reached 2,000 February 2016, 3,000 in October 2019, and 4,000 in March 2021. On its face, this looks like a fairly straightforward incline with new barriers being broken every second or third year. Anyone who was invested during these times knows that the journey was not so linear and much volatility occurred along the way.
But growth it has been, especially during the last eight years, when we’ve seen a 150% increase, while the previous 100% increase took over a decade. Technology in recent times has been a huge component in these numbers, and from the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla), this year alone we have seen Nvidia’s share price increase over 70% and Meta’s over 40%. These giants definitely skew the overall economic picture, though there is much positivity coming from the US as a whole – inflation is now down to 2.4%, about where most would like to see it, and it seems a recession has been avoided.
Japan’s Nikkei 225 is a somewhat different story. Rather than growth compounded over years (albeit with some winners and losers), the Nikkei has only just edged above where it sat in 1989, prior to the country’s asset bubble.
Despite these fantastic months of increase in their stock market value so far in 2024, Japan also technically slipped into a recession, as they experienced two quarters of negative GDP growth.
This is a complex dynamic to understand. If corporate Japan are at all time highs, how can consumer spending be so weak as to cause a recession? Is Japan in a good or a bad place right now economically?
The above question would not be out of place in an exam for someone taking a Phd in economics, so I certainly won’t try to answer in a report intended to be read in five minutes.
With that said, however, one dynamic to consider is population demographics. The median age in Japan is 48 years old. For other highly populated countries like China and the US, the median age is 38, whilst in India it’s just 28, and quite a unique pattern has emerged with these ten year intervals.
Over 30% of Japan’s population is over 65, many of whom are on state pensions that cost the country, while they also spend less.
The UK is one market that is lagging behind global growth patterns. In contrast to the US, where large components of its main markets have seen meteoric growth, many of the FTSE’s “big boys” such as Shell, British Petroleum, Astrazeneca and HSBC are all down around 5%.
In addition, the manufacturing sector in the UK is down for the 19th consecutive month. We’ll see if some of the announcements about the budget coming this week can help bolster its lowly position amongst peers.
The variations above once again illustrate the complexities in finding the right path to get the best growth. Where some areas have flown, perhaps we can expect a pull back. Where others have struggles, is there opportunity?
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