State of Financial Markets – TINA is Back in America. The Champagne Cascade is overflowing with abundance. What’s Next? Top 10 Facts and Trends
1. TINA: short for "There Is No Alternative," describes the prevailing sentiment that investors have little choice but to buy U.S. equities. This phenomenon continues to dominate as global markets offer limited competing opportunities.
2. Equity Market Resilience: Reality is different despite expectations that higher interest rates would plunge the global economy into a deep recession and adversely impact equity markets in 2024. The NASDAQ is up 30%, and the S&P 500 has gained 25% — marking the fourth 20%-plus year in the last six.
3. Source of S&P 500 2024 returns: According to Robert Armstrong, 1.2% came from dividends last year. Another 10% came from higher stock valuations (the forward P/E for the index went from 20.5 to 22.6). The final 13% or so came from rising earnings expectations, which can be broken down into revenue growth (about 5%) and margin expansion (the remaining 8%).
How did we get here?
4. The Champagne Cascade Metaphor: The champagne cascade symbolizes an overflowing abundance. It conjures the image of champagne being poured into the top glass of a stacked tower, cascading down to fill the glasses below. This metaphor aptly captures the buoyant mood of the markets.
5. A Stacked and Filled Champagne Tower: Since 2020, combined fiscal and monetary actions have poured over $10 trillion in liquidity into the U.S. economy. This has fuelled the dramatic recovery and growth across financial markets.
Grand Champagne Tower being served and consumed
6. Inflation and Interest Rates: Rising inflation and higher interest rates have consumed several glasses of champagne.
7. Higher Valuations: Elevated P/E ratios have sipped another portion of the champagne.
8. Speculative Assets: Speculative physical and financial assets have absorbed additional glasses, as exuberance spreads to high-risk investments.
What Next?
9. "There are two kinds of forecasters: those who don't know, and those who don't know they don't know." — J.K. Galbraith.
I am smart enough to know that I am dumb at predictions, I have no idea about 2025.
10. The party is not over until the champagne runs dry. It will continue as long as there is liquidity in the markets.
Happy New Year and cheers to you all!
Views are personal and certainly not investment advice.
My blogs are “Notes to Self”—a way to bookmark inspirations, learning, and random ponderings.
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