Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 12/02/24
The S&P500 crossed the 5000 mark due to strong economic data and positive Q4 corporate results
Key Takeaways
US equities ended the week at a fresh-all time high, with the S&P500 crossing the 5000 threshold (+5% YtD) in view, inter alia, of strong US economic data (PMIs, initial jobless claims) and positive Q4:2023 corporate results. Note, that, with circa 80% of S&P500 market cap having reported results, companies have surpassed consensus expectations, with the average EPS beat rate at +6.8% versus a historical average of +4.2%.
Resilient US economic activity (real GDP growth of +2.5% in 2023, with 2024 estimates heading north of +2%) is an important part of the “soft landing” narrative for the global economy, which is becoming more convincing. The IMF increased its forecast for global real GDP growth in 2024 by +0.2 pps to +3.1%, matching the estimated performance in 2023.
A downward revision for US CPI monthly growth in December (+0.2% mom instead of +0.3%) also supported risk appetite. Investors will be eager for signs that inflation deceleration continues, with attention now turning to January’s data, due on February 13th. According to consensus, US CPI (core) is expected to decelerate further to +2.9% yoy (+3.8% yoy) from +3.4% yoy in December (+3.9% yoy).
Continued strong US economic data combined with Fed commentary suggesting that investors could be running ahead of themselves regarding rate cuts in 2024, led to higher yields. Specifically, the 10-Year Treasury yield increased by +16 bps to 4.19%, while the 2-Year tenor rose by +12 bps to 4.49%.
However, the reconfiguration of the US fiscal policy towards a viable path, remains top of mind for investors. Recall that the federal deficit rose for the fiscal year through September 2023 (“2023”) to $2 trillion (-7.5% of GDP) from circa $1 tn in the previous fiscal year (-4.0% of GDP), after removing the impact of the student-loan forgiveness program that was struck down by the Supreme Court.
According to the Congressional Budget Office, the federal budget deficit, under current legislation, is estimated at $1.6 tn in 2024 (-5.6% of GDP). That projection was moderately revised down (by -0.1 tn) compared with May 2023, due to less discretionary spending in view of the Fiscal Responsibility Act and the Further Continuing Appropriations and Other Extensions Act. In addition, the cumulative deficit for the period 2024 – 2033 is $1.4 tn below the one envisaged in May 2023.
Recall that, effectively, these Acts were a prerequisite to reach the necessary consensus in the legislature, to extend (up to January 2025) the suspension of the federal debt “ceiling”. All told, the deficit is anticipated to widen again in 2025 (-6.1% of GDP), averaging -5.6% up to 2034. Such ratios are unprecedented outside extraordinary periods (World War II, the 2007 – 2009 financial crisis and the coronavirus pandemic) and are compared with an average deficit of -3.7% from 1974 to 2023. Net interest expenses are a major contributor to deficit, estimated at 3.9% of GDP in 2034 versus 2.4% in 2023 and 1.8% in 2019.
Overall, the federal government debt is expected to reach a record high of 116.0% of GDP in 2034 from 97.3% in 2023 and 79.0% in 2019. Demographic trends weigh on fiscal dynamics. Note that the number of people aged 65 and above, is estimated to rise to 75 million in 2033 from 61 million in 2023, with outlays for social security at 5.9% of GDP in 2034 from 5.0% in 2024 and for major health care programs at 6.7% from 5.8%, respectively.
Key Takeaways
US equities ended the week at a fresh-all time high, with the S&P500 crossing the 5000 threshold (+5% YtD) in view, inter alia, of strong US economic data (PMIs, initial jobless claims) and positive Q4:2023 corporate results. Note, that, with circa 80% of S&P500 market cap having reported results, companies have surpassed consensus expectations, with the average EPS beat rate at +6.8% versus a historical average of +4.2%.
Resilient US economic activity (real GDP growth of +2.5% in 2023, with 2024 estimates heading north of +2%) is an important part of the “soft landing” narrative for the global economy, which is becoming more convincing. The IMF increased its forecast for global real GDP growth in 2024 by +0.2 pps to +3.1%, matching the estimated performance in 2023.
A downward revision for US CPI monthly growth in December (+0.2% mom instead of +0.3%) also supported risk appetite. Investors will be eager for signs that inflation deceleration continues, with attention now turning to January’s data, due on February 13th. According to consensus, US CPI (core) is expected to decelerate further to +2.9% yoy (+3.8% yoy) from +3.4% yoy in December (+3.9% yoy).
Continued strong US economic data combined with Fed commentary suggesting that investors could be running ahead of themselves regarding rate cuts in 2024, led to higher yields. Specifically, the 10-Year Treasury yield increased by +16 bps to 4.19%, while the 2-Year tenor rose by +12 bps to 4.49%.
However, the reconfiguration of the US fiscal policy towards a viable path, remains top of mind for investors. Recall that the federal deficit rose for the fiscal year through September 2023 (“2023”) to $2 trillion (-7.5% of GDP) from circa $1 tn in the previous fiscal year (-4.0% of GDP), after removing the impact of the student-loan forgiveness program that was struck down by the Supreme Court.
According to the Congressional Budget Office, the federal budget deficit, under current legislation, is estimated at $1.6 tn in 2024 (-5.6% of GDP). That projection was moderately revised down (by -0.1 tn) compared with May 2023, due to less discretionary spending in view of the Fiscal Responsibility Act and the Further Continuing Appropriations and Other Extensions Act. In addition, the cumulative deficit for the period 2024 – 2033 is $1.4 tn below the one envisaged in May 2023.
Recall that, effectively, these Acts were a prerequisite to reach the necessary consensus in the legislature, to extend (up to January 2025) the suspension of the federal debt “ceiling”. All told, the deficit is anticipated to widen again in 2025 (-6.1% of GDP), averaging -5.6% up to 2034. Such ratios are unprecedented outside extraordinary periods (World War II, the 2007 – 2009 financial crisis and the coronavirus pandemic) and are compared with an average deficit of -3.7% from 1974 to 2023. Net interest expenses are a major contributor to deficit, estimated at 3.9% of GDP in 2034 versus 2.4% in 2023 and 1.8% in 2019.
Overall, the federal government debt is expected to reach a record high of 116.0% of GDP in 2034 from 97.3% in 2023 and 79.0% in 2019. Demographic trends weigh on fiscal dynamics. Note that the number of people aged 65 and above, is estimated to rise to 75 million in 2033 from 61 million in 2023, with outlays for social security at 5.9% of GDP in 2034 from 5.0% in 2024 and for major health care programs at 6.7% from 5.8%, respectively.