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For stocks and the economy, welcome to the Roaring Twenties – MarketWatch

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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.

Energy and other commodity prices will stay manageable and capital super abundant, not in constrained supplies as was the constant worry in the closing decades of the 20th century.

Central banks won’t be the primary force keeping down nominal interest rates.

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.

Transparency in pricing — Amazon’s

AMZN, +0.43%

 and Alibaba’s

BABA, +2.97%

 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.

Low real interest rates plus low inflation begets low nominal rates on safe government securities, insured CDs and corporate bonds. It also enables more borrowing by companies that need tightening up or perhaps liquidation altogether.

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

BUXX, +0.01%

 , even though the United States is less than one-fifth of the global economy.

Citigroup

C, +1.77%

 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

SPX, +0.70%

 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.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

The Canadian Press. All rights reserved.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Economy

September merchandise trade deficit narrows to $1.3 billion: Statistics Canada

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OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.

The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.

Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.

Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.

Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.

In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.

This report by The Canadian Press was first published Nov. 5, 2024.

The Canadian Press. All rights reserved.

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