The U.S. stock market has been a topic of much debate among investors and analysts, especially regarding its valuation levels. As of the end of 2024, several indicators suggest that U.S. stocks might be overvalued.
Buffet indicator
One of the most watched metrics is the Buffett Indicator, named after the legendary investor Warren Buffett. This indicator compares the total market capitalisation of U.S. stocks to the country’s gross domestic product (GDP).
Historically, a ratio above 100% is considered overvalued. As of September 30, 2024, this ratio stands at approximately 208%, significantly above the historical average and suggesting that the market is strongly overvalued.
P/E and CAPE
Another important metric is the Price-to-Earnings (P/E) ratio, which measures the price of stocks relative to their earnings. The cyclically adjusted P/E ratio (CAPE), popularised by economist Robert Shiller, provides a long-term view by averaging earnings over ten years.
The CAPE ratio for the S&P 500 is currently around 35, well above the historical average of 16-17. This high level indicates that investors are willing to pay a premium for stocks, which could be a sign of overvaluation.
Several factors contribute to these elevated valuations. Low interest rates have played a significant role, making bonds less attractive and pushing investors toward stocks. Additionally, the rapid technological advancements and growth in sectors like technology, AI, and healthcare have driven up stock prices. Companies in these sectors have experienced significant revenue growth, leading to higher valuations.
High valuations
However, these high valuations come with risks. The market’s current levels are pricing in a lot of optimism about future growth and profitability. Any economic slowdown, policy changes, or unforeseen global events could trigger a market correction. Investors must remain cautious and consider the potential for volatility.
On the other hand, some analysts argue that the current valuation levels can be justified by the robust corporate earnings and strong economic fundamentals. They point out that the U.S. economy has shown resilience in the face of challenges, and many companies have adapted well to the changing environment.
Summary
In conclusion, while U.S. stocks are currently expensive and may be overvalued by historical standards, it’s essential to understand the underlying factors and potential risks.
Investors should stay informed, diversify their portfolios, and be prepared for possible market fluctuations. As always, a balanced approach to investing, considering both the potential rewards and risks, is crucial.
Always do your own and careful – RESEARCH!RESEARCH!RESEARCH!
The inflation rate, which measures price changes, hit 2.3% in the year to October 2024, a bigger-than-expected increase from 1.7% in September 2024.
The increase was in part due to an increase in the regulator-set energy price cap that took effect in October 2024, which is expected to increase energy price inflation through the winter.
The Office for National Statistics (ONS), said while higher energy costs had contributed, this increase was offset by falls in live music and theatre ticket prices.
The inauguration of Chancay Port in Peru represents a significant development in China-Peru relations and is set to revolutionise trade facilities within Latin America.
This $3.5 billion mega port, opened by Chinese President Xi Jinping and Peruvian President Dina Boluarte, is a component of China’s Belt and Road Initiative (BRI) and seeks to improve connectivity between South America and Asia.
Located about 80 kilometres north of Lima, the deep-water port is anticipated to emerge as a significant trade hub, especially for commerce with China. Boasting a draft depth of 17.8 metres, the Chancay port is capable of hosting the largest container ships in the world, which is expected to considerably cut down shipping durations and logistical expenses.
The port has the potential to process over 1 million TEUs (twenty-foot equivalent units) each year, enhancing Peru’s position as a key logistical centre in the region.
Job creation
The Chancay Port is expected to generate over 8,000 jobs in the coming decade, aiding in the export of minerals such as lithium and copper from Chile and Peru. It will also facilitate the import of Asian electronics, textiles, and other consumer goods, further connecting Latin American markets with Asia.
Peruvian authorities see the port as a move towards transforming Peru into the ‘Singapore of Latin America’, boosting its role as a global trade centre.
The Chancay Port aims to rival other significant ports in the area, like Mexico’s Port of Manzanillo and California’s Long Beach, by offering direct routes to Asia and cutting shipping times by as much as 20 days.
Expansion
This progress highlights China’s expanding role in Latin America and its dedication to strengthening economic relationships within the region. The Chancay Port represents not only a conduit for commerce but also a sign of the increasingly close partnership between China and Latin America.
President Xi Jinping himself attended the inauguration of the Chancay port, an indication of just how seriously China takes the development.
There is a strong perception that the U.S. is losing ground in Latin America as China forges ahead with its Belt and Road Initiative (BRI).
The deep-water port also potentially carries military implications for the U.S. too.
The UK economy expanded by just 0.1% from July to September 2024, as announced in the most recent official data release.
The growth was less than anticipated, and the Office for National Statistics (ONS) reported that most sectors experienced subdued activity over the quarter.
Labour, having prioritised economic growth upon assuming power, found Chancellor Rachel Reeves expressing dissatisfaction with these figures, which represent the initial three months of the new administration.
Several economists have attributed the uncertainty surrounding the contents of October’s Budget as a factor impeding growth.
This impact was notably pronounced in September, when the economy saw a contraction of 0.1%.
Moreover, the government is contending with criticism from certain businesses that are opposed to the tax increases introduced in the Budget.
Whichever way you look at these figures; they’re utterly dire.
The core CPI, which excludes food and energy, saw a monthly increase of 0.3% and an annual rate of 3.3%, also in line with projections.
For the month, the consumer price index, assessing a range of goods and services, went up by 0.2%. This increment raised the year-over-year inflation rate to 2.6%, a 0.2% increase from September 2024.
These figures matched estimates. When food and energy were excluded, the core CPI’s monthly rise was even more significant, at 0.3%, with an annual rate of 3.3%, confirming the forecasts.
The purchase of Meme coins is often viewed as indicators of retail interest and the willingness to take risks in the cryptocurrency market. Increased activity in meme coins typically signals that retail investors are engaging and are inclined to speculate more aggressively on the risk spectrum.
Trump initially proposed the concept of an efficiency commission in September 2024. Since that time, Musk -who has previously referred to himself as the ‘Dogefather’ – is known for making public statements about the meme coin that affect its value, has posted on his social media platform X, referring to the commission as the ‘Department of Government Efficiency’ or ‘D.O.G.E.‘
Dogecoin’s relevance surged in 2021 due to Elon Musk’s endorsement and the continuous hype on social media, which became a significant catalyst for the cryptocurrency. In May of that year, Musk’s tweets propelled Dogecoin to its peak value around 67 cents, according to market analysis. However, his reference to Dogecoin as ‘a hustle’, caused its value to plummet.
Recently, Dogecoin’s value increased following the post-election announcement by President-elect Donald Trump about the establishment of the ‘Department of Government Efficiency‘, which he acronymized as ‘DOGE’ in his statement.
Elon Musk, CEO of Tesla, and Vivek Ramaswamy, the former Republican presidential candidate and co-founder of Strive Asset Management, have been appointed to lead this department.
According to Trump’s statement, their role will be instrumental in his administration’s efforts to dismantle government bureaucracy, reduce unnecessary regulations, eliminate wasteful spending, and reorganise federal agencies.
The U.S. stock market sunbathed in another day of records on Friday 8th November 2024.
The Dow and S&P 500recorded their best week in a year after Trump’s election win.
The Dow Jones Industrial Average rose 259.65 points to close at 43,988.99 and broke the 44,000 barrier in intraday trading. The Dow Jones traded above 44,000 for the first time ever during the session.
The S&P 500 closed at 5,995.54, after briefly trading above 6,000 – a first for the S&P 500.
The tech-heavy Nasdaq Composite slowed at 19,286.78 but set an intraday record high as well.
The Federal Open Market Committee (FOMC) has reduced its benchmark overnight borrowing rate by 0.25%, bringing it to a target range of 4.50%-4.75%.
This move follows September’s significant 0.5% cut. The overnight borrowing rate, while primarily affecting interbank lending rates, also typically impacts consumer debt products including mortgages, credit cards, auto and other loans.
The Bank of England cut interest rates by 0.25% Thursday 7th November 2024, even as Labour’s budget announcement confuses the outlook for future policy easing.
The anticipated reduction, marking the central bank’s second this year, lowers the key rate to 4.75%.
Financial markets had forecast a high probability of the quarter-point decrease at the November 2024 meeting, although analysts cautioned that future cuts might be postponed due to the Labour government’s tax-and-spend budget.
Investors are now awaiting remarks from Governor Andrew Bailey and his team regarding their updated economic forecast following the budget and the U.S. presidential election.
China exports reportedly rose by 12.7% year on year to $309.06 billion in October 2024 – the highest jump since March 2023 when they rose 14.8% according to recent data reports.
Imports, however, declined by a more-than-expected 2.3% in October, according to customs data.
The world’s second-largest economy is facing challenges with weakening domestic consumption and an ongoing property crisis, with exports emerging as a bright spot.
Stocks rallied sharply on Wednesday 6th November 2024, with major indices hitting record highs, as Donald Trump won the 2024 presidential election.
It looks like the Trump rally has already begun.
The Dow Jones Industrial Average surged 1,508.05 points to a record close of 43,729.93. The last time the Dow jumped more than 1,000 points in a single day was in November 2022.
The S&P 500 also hit an all-time high, soaring to 5,929.04. The Nasdaq Composite climbed to a record of its own too of 18,983.47.
Dow Jones one-year chart as of 6th November 2024
Dow Jones one-year chart as of 6th November 2024
S&P 500 one-year chart as of 6th November 2024
S&P 500 one-year chart as of 6th November 2024
Nasdaq Composite one-year chart as of 6th November 2024
Nasdaq Composite one-year chart as of 6th November 2024
After losing the re-election to President Joe Biden in 2020, Donald Trump, the 45th president, has now been elected as the 47th.
Trump’s victory sets several historic records. At the age of 78, he becomes the oldest individual to win a U.S. presidential election. He is the first president to serve two nonconsecutive terms since Grover Cleveland 132 years ago, and his win comes from what is likely the costliest presidential race in history.
Also, he is reportedly the first president, whether in office or former, to have been convicted of crimes. He is also the first president to be impeached twice and then reclaim the presidency. Additionally, he is the first to assume office while actively facing criminal charges in both federal and state courts.
This victory for Trump prevents Vice President Harris from achieving what would have been a historic feat: becoming the first female president of the United States.
As Trump secures win stock markets react positively as Dow and S&P 500 futures rise to touch new all-time highs!
Switzerland may be at risk of entering deflationary territory in 2025 due to the strengthening of the Swiss franc, which is challenging policymakers’ control over price growth.
The Swiss National Bank has lowered interest rates three times this year as of September, attributing the country’s declining inflation rate to the robustness of the safe-haven currency, as well as to falling oil and electricity prices.
Analysts increasingly believe that the Swiss National Bank may need to engage in foreign currency intervention to avert a deflationary scenario.
Furthermore, the central bank has adjusted its forecasts downward, setting the average annual inflation rate for 2024 at 1.2%, down from 1.3%, and anticipating a price growth of 0.6% in 2025, a decrease from the previously forecasted 1.1%.
In October 2024, non-farm payrolls saw an increase of 12,000, a significant drop from September’s figures and falling short of the 100,000 predicted
The unemployment rate remained steady at 4.1%, meeting expectations.
The rate of job growth in October 2024 was the slowest since the end of 2020, hindered by the effects of storms in the and a considerable labour standoff (strike action), which impacted the overall employment picture.
According to the Bureau of Labor Statistics‘ Friday report, the modest increase in nonfarm payrolls for October, which was already anticipated to be subdued, marked the smallest rise since December 2020.
China’s factory activity jumped back into expansion among smaller manufacturers in October 2024, according to a private survey report released on Friday 1st November 2024.
The index stood at 49.3 in September 2024, 50.4 in August, and 49.8 in July. A PMI figure above 50 signifies an expansion in activity, whereas one below 50 suggests a contraction.
Following the release of the official PMI data on Thursday 31st October 2024, which showed the first expansion in the country’s manufacturing activity since April 2024, the Caixin measure, which typically reflects the performance of exporters and private sector firms, contrasts with the official PMI that includes larger and state-owned enterprises.
Inflation saw a modest rise in September 2024, edging closer to the Federal Reserve’s target, as reported by the Commerce Department on Thursday 31st October 2024.
The personal consumption expenditures (PCE) price index recorded a seasonally adjusted increase of 0.2% for the month, and the year-over-year inflation rate stood at 2.1%, aligning with predictions. The PCE index is the Fed’s preferred inflation measure, although officials monitor various other indicators as well.
The Fed aims for a 2% yearly inflation rate, a benchmark not met since February 2021.
Despite the main figure indicating that the central bank is approaching its objective, the inflation rate, excluding food and energy, was at 2.7%. This core inflation metric rose by 0.3% monthly, with the annual rate exceeding expectations by 0.1 percentage points.
This report arrives as markets strongly anticipate the Fed will reduce its benchmark short-term interest rate at the upcoming meeting. In September 2024, the Fed made a significant half-percentage-point rate cut, a rare action during an economic upturn.
Officials remain optimistic that inflation will realign with their target, yet they are wary about the labour market’s condition, even as most data suggests steady hiring and low layoff rates.
Inflation in the euro zone increased from 1.7% to 2% in October 2024, according to latest figures released on Thursday 31st October 2024, exceeding the forecast of 1.9%. weakening case for jumbo rate cut
Both core inflation and services inflation reportedly remained the same as the previous month.
The markets are anticipating a 0.25% reduction in interest rates by the European Central Bank in December 2024, while analysts have suggested that the latest figures could sway the argument against a more substantial cut.
A reduction of 0.5% has been muted but is now less likely.
In October 2024, Germany’s inflation rate rose to 2.4%, as per the preliminary figures from the Federal Statistical Office, Destatis
This increase defied the expectations of analysts, who had predicted a 0.1% decrease, thus narrowly preventing Germany from entering a technical recession, defined by two successive quarters of economic decline.
The inflation rate is adjusted for consistency across the eurozone.
Following this, Destatis released a preliminary report earlier on Wednesday 30th October 2024 showing that Germany’s GDP grew by 0.2% in the third quarter, in comparison to the preceding three months.
The U.S. economy experienced another growth spurt, albeit slightly underwhelming, growth period in the third quarter, driven by strong consumer spending that has surpassed slowdown expectations
The gross domestic product (GDP), which gauges all goods and services produced from July through September 2024, rose at a 2.8% annualised pace, as per the inflation and seasonality-adjusted Commerce Department report released Wednesday 30th October 2024.
This report verifies that the U.S. growth persists, notwithstanding high interest rates and persistent concerns that the surge of fiscal and monetary stimulus, which supported the economy during the Covid crisis, might not suffice to maintain growth.
The euro zone’s economy expanded by 0.4% in the third quarter, according to flash figures released by the European Union’s statistics office (Eurostat) on Wednesday 30th October 2024.
Economists had anticipated a growth of 0.2%, following a 0.3% increase in the second quarter.
Analysts predict that euro zone growth may pick up cautiously in the upcoming months, in light of lower interest rates and subsiding inflation.
The ECB pointed to sustained indications of sluggish activity in the euro area as a significant reason for the rate cut in October.
Markets have completely factored in another 0.25% reduction by the ECB for its final meeting of the year in December 2024.
Germany, the largest economy in the euro zone, reported an unexpected 0.2% growth in the third quarter, as per figures released on Wednesday 30th October 2024. This growth helped the country steer clear of the recession predicted by some economists.
In September 2024, China’s industrial profits fell at the fastest rate since the pandemic of 2020 began, according to China’s National Bureau of Statistics
Following a 17.8% decrease in August 2024, profits in September 2024 plummeted by 27.1% from the previous year, reportedly the most significant drop since the 34.9% decline in March 2020, according to analysis.
In response, Chinese officials have intensified efforts to stimulate growth.
On Friday 25th October 2024, Russia’s central bank increased its key interest rate by 2% (200 basis points) to 21%, attributing the decision to consumer price increases significantly exceeding its projections and cautioning about persistent high inflation risks in the medium term
This rate hike surpasses the 1% (100 basis-point) rise anticipated by analysts and sets the bank’s benchmark rate at its highest level since February 2003, as reported by analysts.
Previously, the key rate had been raised by 1% (100 basis points) to 19% in September 2024.
It was reported that the annual seasonally adjusted inflation hit an average of 9.8% in September 2024, up from 7.5% in August 2024.
It is now anticipated the rate will stick at around the 8.0% – 8.5% range for the remainder of 2024. This is running above a July 2024 forecast of around 6.5% – 7.0%.
As of September 2024, the UK’s national debt stands at £2,685.6 billion, which is approximately 100% of the country’s GDP. This is the highest level of public sector debt since 1961.
UK debt and its borrowing
As of 2024, the United Kingdom’s national debt has reached a staggering £2,685.6 billion, an amount equivalent to the nation’s GDP. This surge in debt, driven by persistent borrowing, has sparked significant economic and political debate.
Historical context
The UK’s debt levels have fluctuated over time, influenced by wars, recessions, and policy decisions. However, the current debt level marks a significant peak not seen since the early 1960s.
The Financial Crisis of 2008 saw the debt-to-GDP ratio rise sharply as the government borrowed heavily to stabilize the banking sector and stimulate the economy. More recently, the COVID-19 pandemic necessitated extensive government borrowing to fund health services, furlough schemes, and business support measures, exacerbating the debt situation.
Government borrowing
Government borrowing, or public sector net borrowing, is the amount by which government expenditures exceed its revenues. This borrowing is essential for funding various public services, infrastructure projects, and welfare programs.
While borrowing can be a tool for stimulating economic growth, especially during downturns, it also raises concerns about fiscal sustainability and the burden on future generations.
Economic Implications
High levels of national debt can have profound economic implications. On the one hand, government spending can stimulate economic activity, create jobs, and drive growth. However, excessive borrowing can lead to increased interest payments, diverting resources from essential services like healthcare and education.
Additionally, high debt levels can reduce investor confidence, potentially leading to higher borrowing costs for the government and businesses.
Debt management strategies
The UK government employs various strategies to manage its debt. These include issuing government bonds to investors, which provide a relatively low-cost means of borrowing. The Bank of England also plays a crucial role, particularly through its monetary policies, such as setting interest rates and implementing quantitative easing programs.
The government’s fiscal policy, which includes tax and spending measures, is another key component in managing the debt.
The future
Looking ahead, the UK’s debt trajectory will depend on several factors, including economic growth rates, government policy decisions, and global economic conditions.
While reducing the debt burden is a priority, balancing fiscal responsibility with the need for economic stimulus remains a delicate act. Policymakers must navigate this complex landscape to ensure long-term economic stability and prosperity for future generations.
UK debt in direct relation to UK GDP from 1980 – 2024
Since the 1950s, UK debt has gone through several cycles. Post-World War II, debt was high due to reconstruction efforts.
The 1980s saw a decline in debt, thanks to privatisation and reduced public spending. However, the 2008 financial crisis caused a sharp increase, followed by more borrowing during the COVID-19 pandemic, reaching 100% of GDP in 2024.
UK public sector borrowing
Public sector debt as a proportion of GDP
How does the UK government borrow money?
The government raises funds by issuing financial instruments known as bonds. A bond represents a commitment to repay borrowed money in the future, typically with periodic interest payments until maturity.
UK government bonds, or ‘gilts’ are generally regarded as secure investments, carrying minimal risk of non-repayment. Institutions both within the UK and internationally, including pension funds, investment funds, banks, and insurance companies, are the primary purchasers of gilts.
Additionally, the Bank of England has purchased substantial amounts of government bonds in the past as an economic stimulus measure through a mechanism known as ‘quantitative easing’.
How much is the UK government borrowing?
The government’s borrowing fluctuates monthly. For example, in January, when tax returns are filed, there’s typically a surge in revenue as many pay a significant portion of their taxes at once. Therefore, it’s more informative to consider annual or year-to-date figures.
In the financial year ending March 2024, the government borrowed £121.9 billion. The latest data for September 2024 indicates borrowing at £16.6 billion, up by £2.1 billion compared to September 2023.
The national debt refers to the total amount owed by the government, which stands at approximately £2.8 trillion. This figure is comparable to the gross domestic product (GDP) of the UK, which is the total value of goods and services produced in the country annually.
The current debt level has more than doubled since the period from the 1980s up to the 2008 financial crisis. Factors such as the financial crash and the Covid pandemic have escalated the UK’s debt from its historical lows to where it is now.
However, when considering the economy’s size, the UK’s debt is relatively low compared to much of the previous century and to that of other major economies.
How much money does the UK government pay in interest?
As the national debt increases, so does the interest that the government must pay. This additional cost was manageable when interest rates were low throughout the 2010s, but it became more burdensome after the Bank of England increased interest rates.
The government’s interest payments on the national debt are variable and reached a 20-year peak in early October 2023. Approximately a quarter of the UK’s debt is tied to inflation, meaning that payments increase with rising inflation.
This situation led to a significant rise in the cost of debt service, though these payments have begun to decrease. If the government allocates more funds to debt repayment, it could result in reduced spending on public services, which were the original reason for the borrowing.
In conclusion, while the UK’s debt and borrowing levels present challenges, strategic management and informed policy decisions will be crucial in navigating the path forward.
The UK debt total vs GDP is now as of 2024 all but 100%
On Wednesday 23rd October 2024, the U.S. 10-year Treasury yield climbed again as traders considered recent remarks from Federal Reserve officials regarding the direction of interest rate reductions
The U.S. 10-year Treasury yield increased by over 0.030% to approximately 4.24%. The benchmark rate peaked at 4.26% during the session, its highest since July 2024. This surge followed a 12-basis point leap on Monday 21st and a rise above 4.2% on Tuesday 22nd.
The U.S. 2-year Treasury yield also rose, reaching 4.06%, up by roughly 0.030%. Earlier in the day, it achieved a high of 4.072%.
Yields and equity prices have an inverse relationship. A single basis point is equivalent to 0.01%
Elevated Treasury yields are exerting pressure on the equity market, causing U.S. stock futures to drop. This downturn follows the S&P 500‘s first consecutive loss since the beginning of September.
Despite a half-point reduction by the Federal Reserve in September 2024, strong economic indicators and concerns about the deficit have contributed to the increase in the 10-year Treasury yield.
Traders are worried that the central bank might be reluctant to lower rates further, even though the Fed predicted additional cuts amounting to half a point by the end of the year.
The International Monetary Fund (IMF) has issued a warning about the potential decline of China’s property market while reducing its growth forecast for the world’s second-largest economy.
In a report published Tuesday, The IMF has reduced its growth forecast for China this year to 4.8%, which is 0.2 percentage points below its July projection. For 2025, the IMF reportedly anticipates growth to be at 4.5%.
The IMF has pointed out that the unexpected contraction of China’s property sector is among several factors posing risks to the global economic outlook.
‘The real estate market could face worsening conditions, potentially leading to further price declines amid a drop in sales and investment’, the report indicated.
The report referenced past property crises in countries such as Japan in the 1990s and the U.S. in 2008, suggesting that if China’s situation is not managed, property prices may fall even more.
According to the IMF‘s World Economic Outlook, this could undermine consumer confidence, leading to lower household spending and domestic demand.
In October 2024, the asking prices for UK homes increased only slightly as the market saw an influx of properties, a survey reportedly revealed on Monday 21st October 2024
This report also indicated that some buyers were holding off on purchases, awaiting details on tax revisions from the new government’s forthcoming budget.
The increase in asking prices was a just 0.3% for October 2024, significantly lower than the typical 1.3% monthly rise for this time of year, according to property website Rightmove.
There was a 12% rise in the number of homes listed for sale compared to the same period last year, marking the highest number per estate agent since 2014.
Despite the increase in supply, the property market’s overall activity remained robust, with a continued uptick in buyer demand. Year-on-year, prices saw a 1.0% increase.
