The stars are aligning for a roaring decade for the economy and stocks.
After 20 years of slow growth — dictated by halting productivity advances and volatile labor force participation — artificial intelligence (AI) and 5G are about to unleash progress.
AI will cut mid-skilled jobs — for example, on factory floors and among educators — but not exterminate occupations. Mechanization, hybrid seeds fertilizer and herbicides did not eliminate farmers but rather consolidated holdings and enabled higher yields per acre—trends that continue today with computer- and GPS-assisted soil management.
Internet-connected autos and homes will provide consumers with timely granular information about product performance and empower businesses to accelerate smarter, more reliable design.
Less stress for workers
Workers will produce more but in generally less-strenuous circumstances. The latter will extend working lives and help mitigate the challenges posed by falling birth rates and aging populations.
Overcrowding and pollution will become less urgent, thanks to plateauing populations and paradigm-changing green technologies—electric cars and renewable power.
An aging global population saves a lot more — as the challenges of raising children recede, financing retirement must be addressed. The rising supply of funds pushes down inflation-adjusted (real) interest rates on bonds and bank accounts.
great contribution to the new economy — along with automation, robotics and abundant energy are pinning down inflation for most things other than government monopoly-enabled drugs, medical care and higher education.
The world is awash with financial capital that can’t get a decent return on interest bearing instruments. The wealthy seek out private equity and hedge-fund gambits and more prudent ordinary investors focus on shares in reputable businesses that reliably earn profits.
America still at the center
America provides the market, the currency and the plumbing.
The United States boasts the world’s largest capital markets, because Wall Street financial houses and law firms recruit very bright people from the Ivy League and the top tier of state universities but great talent is not enough.
More than 40% of all cross border trade and 60% of international debt financing are denominated in dollars
and other U.S. banks’ global networks provide the plumbing for all those transactions
Those make American real estate, bonds, legitimate startups and sound equities a global magnet for financial capital. Foreign banks, businesses and individual investors of all sizes now hold dollar-denominated assets—and that will keep interest rates down and permit large federal deficits.
When interest rates on sound debt are low, the premium investors are willing to pay for stocks goes up—that’s measured by the price-earnings ratio or what investors pay for profits.
Fair value
U.S. equities are fairly priced—the P/E ratio on the S&P 500
is about 24 and that’s nearly equal the average for the last 25 years. Moreover, falling inflation and interest rates and global dollarization have pushed up the 25-year trailing average from 15 at the turn of the century and 12 when President John F. Kennedy was elected.
The sustainable P/E on U.S. equities will likely continue to trend up, because America remains the best place to invest. The EU will continue to stumble — it talks about a continental response to the China challenge but can’t even solve, for example, chronic air traffic delays by combining its 28 national air-traffic controllers. Multinational corporations will risk capital to establish facilities in China, but authoritarian states are not good destinations for portfolio investments.
U.S. growth will outshine peers in the developed world, and corporate profits will advance on the fruits of AI and internet innovation.
All that sets the table for a hot decade for stocks, and ordinary folks saving for retirement will do well investing in a diversified portfolio like an S&P 500 index fund.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
