- Insight Weekly
- Posts
- Will S&P 500 growth broaden, and grow more slowly over the next 10 years?
Will S&P 500 growth broaden, and grow more slowly over the next 10 years?
INSIGHT WEEKLY: October 27, 2024
If the images do not load, you can just click to download external images in your email to see the newsletter in full, or click the link above to read online.
Reading time of just 5 minutes to be well informed of the need-to-know topics of our times.
🌐 Markets overview
Major market indexes:
There was only one record this week, with the Nasdaq setting a new high. It was not a good week for stocks as the outlook for interest rate cuts is less promising with fewer, and delayed, cuts.
Markets indexes have performed very well in 2024, during which there have been down weeks and this week could be just another down week. Equity funds have seen inflows, which will likely continue to support prices. As mentioned last week, there have been flows out of cash into stocks, bonds, and gold.
Markets v all-time high:
S&P 500:
With 50 new highs this year, will the S&P500 run out of steam? It is up nearly 40% in the last 12 months, the largest 12-month gain since 1954. AI and tech stocks have driven most of the gain.
The analysts at Goldman Sachs think so, estimating 3% growth on average over the next ten years, or 1% in real terms. A contrast to the last ten years of over 11% average growth.
Looking back even further, we see that over the last 100 years, the average gain has been around 10%.
Why the low forecast from Goldmans? They think that the risk in such a highly concentrated market (AI and tech heavy market) has not been reflected in the prices and that this level of concentration is the highest in 100 years. Based on historical analyses, they think that “it is extremely difficult for any firm to maintain high levels of sales growth and profit margins over sustained periods of time”.
What do they expect to happen? They expect that the market will broaden to other sectors, and stocks will face competition from other asset classes.
However, the Goldmans outlook does not account for the transformative potential of AI in all sectors of the S&P500. Such a quantification of the impact of the AI revolution would be difficult to do, so the forecast appears to be based on a historical perspective.
Is the S&P500 on a path to obsolescence? Perhaps a breakout to a Mag 7 and S&P493 would be a better view? This would address the issue of concentration.
Magnificent 7:
Major Semiconductor stocks:
Tesla’s shares surged by 22% after CEO Elon Musk projected a strong rebound in sales for next year, potentially rising 20-30%. This marked the stock’s biggest one-day gain since 2013, adding over $150 billion to its market value. Musk attributed the anticipated growth to cost reductions, which have lowered vehicle prices and boosted demand, especially as financing costs decline. Improved self-driving technology and new products like the autonomous "Cybercab" are also part of Tesla's growth strategy, along with its popular energy storage and supercharger segments, which have seen significant sales increases.
In Q3, Tesla’s adjusted net income rose 8% to $2.5 billion, exceeding estimates, while revenue climbed to $25.2 billion. The company’s gross margin improved to 19.8%, partly due to regulatory credit sales, a strong metric for analysts. Musk’s pivot toward AI, autonomy, and robotics has been central to his long-term vision, aiming to drive future revenue and valuation, though recent public events have faced mixed reactions.
US smaller cap companies (Russell 2000):
If the Goldmans forecast for the S&P500 is accurate, we could then expect that the market broadening would result in an outperformance of the Russell 2000 over the next ten years.
Gold broke another record this week. That’s 39 records this year.
As gold becomes of increasing interest to investors as a store of value, how has it performed v the S&P500?
Gold has outperformed the S&P500 this year.
🇺🇸 US economy
The IMF's latest outlook identifies the US as the main driver of global economic growth for 2024 and 2025, thanks to strong consumer spending. Growth projections have been raised to 2.8% for 2024 and 2.2% for 2025, making the US the only developed economy to see upgrades for both years. Despite ongoing risks like trade tensions, the IMF highlights resilience in key markets. The Federal Reserve's Beige Book also noted stable economic activity, with slowing inflation and a slight rise in hiring from September through early October.
10 year yield rises reflecting concerns about the longer term prospects for inflation, government spending, and Treasury issuance.
Interest rates:
The next Federal Reserve meeting on interest rates is scheduled for November 6-7.
S&P500 is -1.0% in the week and +21.8% year to date.
🇬🇧 UK economy
Debt is about to be recalculated by the new UK government! This will allow it to undertake more borrowing for investment.
Is this some form of sleight of hand? A new definition of debt?
This approach does not redefine debt but instead proposes an alternative framework for measuring it. Traditional debt metrics focus primarily on public sector net debt (PSND), which excludes government-owned assets. The proposed measures, like public sector net financial liabilities (PSNFL) and public sector net worth (PSNW), account for both assets and liabilities, offering a broader view of fiscal health.
This shift could allow the government to increase borrowing specifically for investments by emphasizing the potential long-term returns of these assets rather than only focusing on debt totals.
UK Budget will be announced next week. In this first budget by the new government, the expectations are that there will be increases in:
Payroll taxes in the form of National Insurance for employers
Income taxes by the freezing of the thresholds and tax bands
Capital Gains Tax on profits on sales of assets
Inheritance taxes
Property taxes in the form of stamp duty for the purchase of property
Pension taxes
Non-domicile taxes for UK residents whose permanent home is overseas
Interest rates are expected to be cut next month following the drop in inflation below the targeted 2%.
The next Bank of England meeting on interest rates is scheduled for November 7.
FTSE100 is -1.3% this week and +6.7% in the year to date.
If you like this newsletter, please send this link to friends, family, and colleagues and post it on social media. https://insight-weekly.beehiiv.com/subscribe
🇯🇵 Japan economy
Inflation in Tokyo, which is a significant indicator of inflation in wider Japan, dropped to 1.8% from 2% in September. This is mainly due to the reinstatement of electricity and gas subsidies. Unlike other countries, Japan is hoping to go up to the 2% inflation target in the normalization of the Japanese economy.
Interest rates are unlikely to be hiked from the current 0.25% this year.
Nikkei 225 drops below its 1989 high due to uncertainty about today’s election.
Yen remains weak v the US dollar. The IMF sees the weak yen as beneficial for the Japanese economy as it boosts exports but recommends a gradual increase in interest rates.
Nikkei 225 Index is -2.7% in the week and +13.3% in the year to date.
See previous spotlight on Japan.
🌐 Artificial Intelligence
This cover has been designed using assets from Freepik.com
Apple Intelligence is arriving! The first updates are expected as updates to iOS 18 around end of October. What to expect? Updates to Siri, translation on the Apple Watch Series 10, visual search on the iPhones, and maybe more.
Anthropic has introduced two updated AI models: Claude 3.5 Sonnet and Claude 3.5 Haiku. Sonnet is better at tasks like coding and using digital tools, while Haiku combines speed and affordability, performing well in various tasks.
Additionally, Claude now has a new "computer use" feature in public testing. It can simulate using a computer like a person, navigating screens, clicking, and typing. Although still improving, this feature could automate repetitive tasks and help build software. Safety measures are in place to prevent misuse while it continues to evolve.
Both models will be accessible on major platforms like Amazon Bedrock and Google Cloud's Vertex AI.
See their announcement:
https://www.anthropic.com/news/3-5-models-and-computer-use
Stability AI has a new open source image generation model. The Stable Diffusion 3.5 Large has 8 billion parameters and 1 megapixel resolution.
See their image models:
Get your free guide to AI
See previous spotlight on AI chips
🌐 Crypto Corner
Tracking Bitcoin price (up to October 25):
Bitcoin dropped 3% in the week on news of the DOJ investigation into Tether, another stablecoin. The investigation is to determine if Tether violated money laundering rules and sanctions.
Tracking Eth price (up to October 25):
Ether continues to track Bitcoin but without further significant interest from investors.
See the previous spotlight on Bitcoin halving
🏅5️⃣ Billionaire Leaderboard
Mostly driven by stock market performance :
Change in week :
Elon Musk (Tesla, SpaceX) $274bn ⬆️ $27bn as Tesla gains 22%
Larry Ellison (Oracle) $211bn no change
Jeff Bezos (Amazon) $205bn ⬇️ $1bn
Mark Zuckerberg (Facebook/Meta) $198bn ⬇️ $1bn
Bernard Arnault and family (LVMH) $173bn ⬆️ $1bn
If you liked this newsletter, please send this link to friends, family, and colleagues and post on social media. https://insight-weekly.beehiiv.com/subscribe
Stay tuned for more insights and updates each week.