The end of the year is approaching, the time when fund managers, whether the annual frequency is fair or unfair, are accountable to our investors. What are we facing?
The quarterly publication of business results is almost over. In the United States Profits have exceeded expectations by more than 6% and in Europe they have done so by more than 7%. A new publication of results will not begin until the second half of January, and there is nothing to predict that they will be bad then. So far this year we have met with three hundred listed companies from 20 different countries, and the business boom continues to be the general trend.
The International Monetary Fund released its latest economic forecasts in October, predicting global economic growth of 3.2% for both 2024 and 2025. Good growth, slightly above the historical average. Developed countries growing at 1.8% and emerging countries at 4.2%. It will not make new forecasts until January.
Services PMI data reveals that services not only remain strong, but are accelerating. If we take into account the economies of the US, the Euro Zone, Japan, the United Kingdom, and China, and average the published monthly data, we will observe that the average for 2022 was 51.0, that for 2023 was 52. 4, and that of 2024, up to and including October, is 52.7. Above 50 means that demand for services remains expansive. As is well known, there is no recession possible with a strong demand for services, given that the weight of services in the GDP exceeds 70% in advanced areas of the world such as the United States or the Euro Zone and represents about two thirds of the GDP in the entire world economy. There are therefore no symptoms of a slowdown in demand for services, nor any recession in sight. Consumption remains high, skewed more towards services and fewer goods for about three years now. Of course those more service-oriented sectors and geographies are doing better. For the economy, the level of global consumption is more important, not its orientation.
Unemployment rates worldwide remain well below their historical averagein the minimum zone. The unemployment rate of the world’s advanced countries as a whole is 4.6%, lower than the average of 6.6% that existed from 1980 to the present. This makes it possible for families to finance their evident appetite for services through their own work, their great source of financing. The fact that the services are very labor intensive undoubtedly contributes to low unemployment. Just taking the sample from Spain will we see that there have never been 21.8 million employed people contributing contributions, and that in addition, public sector income is at historic highs.
Inflation rates are controlledalthough the underlying inflation rates, those considered more structural, present greater resistance, located around 3.3% in the United States and 2.7% in the euro zone. This has made it possible to begin the decline in short interest rates… and the rise in long rates. If we compare the rate curves existing at the end of December 2023, with the current ones, we will observe a characteristic cross shape, with short interest rates falling for terms of less than three years, and rising after that maturity. The necessary temporary risk premium that must exist between long and short rates is still insufficient, so it is to be expected that this movement will have greater continuity well into 2025. The cross will open even further.
The existing geopolitical risks remain stagnant, without any short-term solution, despite Trump’s emergence onto the scene. Hypothetical new geopolitical risks, such as China’s conflict with Taiwan, are curiously given a much higher probability of occurrence in the West than in China itself. You are not expected.
Trump’s protectionist ideas will clash not only with the limiting economic reality, but also with the fact that this is his second term, which reduces, in practice, his possibilities of action to the first two years.
Finally, despite the business boom and the good performance of the stock markets, no euphoria is registeredneither among companies that remain very focused on their activity, nor among investors who, far from going after the winning horses, the stock funds, have even rescued them to invest them in monetary funds. Unheard. This predicts a continuity of the current bullish stock market movement.
How to prepare for the end of the year? Simply maintaining the winning strategy so far this year. It’s not over yet.
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