As we usher in the New Year, it’s an opportune time to reflect on the dynamics of the global economy and the financial markets. In this post, we’ll take a step back to explore seven charts that we’re paying attention to in 2024. These charts highlight significant economic and market trends that we believe will be crucial in the year ahead.
1. Investors were too bearish entering 2023 and now they may be too bullish entering 2024.
Source: American Association of Individual Investors. Data from 12/29/2022 through 12/28/2023.
2. Large government deficits have contributed to economic growth in recent years. We question whether the government can continue to run high deficits ad infinitum.
Source: U.S. Bureau of Economic Analysis, U.S. Office of Management and Budget. Retrieved from FRED, Federal Reserve Bank of St. Louis on December 28, 2023.
3. Credit card delinquencies, while still low by historical standards, now exceed pre-pandemic levels. If this trend continues it will be a worrying sign for the sustainability of consumer spending.
Source: Board of Governors of the Federal Reserve System (US). Retrieved from FRED, Federal Reserve Bank of St. Louis on December 28, 2023.
4. The U.S. is already the world’s largest crude oil producer, and we believe it’s likely that production will continue to grow. This should keep a lid on oil prices and may result in over-supply if the global economy weakens.
5. China’s weak economy may have contributed to disinflation through lower import prices in 2023. We believe that China has many structural issues to overcome which may continue to hamper the economy.
Source: U.S. Bureau of Labor Statistics. Retrieved from FRED, Federal Reserve Bank of St. Louis on December 29, 2023.
6. For large portions of the past two years, fixed income securities have realized a positive correlation to equities. With interest rates starting at higher levels, we believe the relationship between fixed income and equities will look more like it did prior to pandemic in coming years.
Source: Bloomberg. Data from 12/31/2012 through 12/29/2023.
7. The spread between mortgage rates and treasury rates remains near 30-year highs, leaving room for mortgage rates to fall further. We believe a 5-6% mortgage rate will spur increased housing activity.
Source: Freddie Mac, Board of Governors of the Federal Reserve System (US). Retrieved from FRED, Federal Reserve Bank of St. Louis on December 29, 2023.