Tuesday 26th of March 2024
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There are a lot of reasons to think we are now in the early stages of a new secular bull market in equities. So, let’s list them!
- Corporate earnings season: Yet again we have had another strong corporate earnings season, with a majority of the companies reporting their results for FY 2023 delivering revenues and profits ahead of expectations. Even some of the sectors which had been laggards in 2022-2023 are showing signs of turning positive. For example, the memory semi-conductor space, in which we invest at Dominion, has reported exceptional results well ahead of expectations on AI demand for new data centres and more computing power. Everywhere we look across the major sectors of the global economy, we see growth, resilience, and strength.
- China and Europe starting to recover: Last year the global macro story was led by the US economy. Growth there was well ahead of predictions, there was no recession despite a consensus of economists predicting one. A lesson learned is to be wary when any group of economists find consensus! This year the US continues to grow and deliver strong economic performance. Last year China and Europe were weaker but there is evidence this year of a pick-up. Eventually these economies will see recovery and it’s likely we will see that this year.
- Inflation appears under control: The bomb that blew up markets in 2022 was inflation. The highest price level rises in the industrial world since the 1970s hammered the nascent post-pandemic optimism and pushed global equities and bonds into one of the toughest bear markets in history. Last year saw central bank policy and supply chain snarls easing lead to a consistent decline in inflation. Rates of inflation appear to be under control. This is great news for the economy and for equities.
- New technologies are now really changing the world: There is always innovation, always new technologies and products being launched, but there are periods when several critical technologies mature which leads to a productivity boom in the economy. This happened with the railways and steam engines in the 19th century, the internal combustion engine and oil industry in the early 20th century, more recently it was the communications and digital revolution in the 1990s. Today, it looks like AI and advanced genetic medicine are maturing game changers which will likely drive a new productivity boom for the global economy. While stocks in these sectors will undoubtedly benefit, so too will the entire economy, lifting all stocks with it.
- Performance last year: this one is simple. When you’re in a bull market, stocks go up. Last year, stocks went up. A lot!
- Performance this year: this one is simple too. When you’re in a bull market, stocks go up. This year, stocks have gone up. A lot!
Most market participants and commentators are still looking backwards, still overly focused on the trauma of pandemic followed by war and inflation. It’s time for investors to look forwards.
Buy equities.
We would like to thank Dominion Capital Strategies for writing this content and sharing it with us.
Sources: Bloomberg, Yahoo Finance, Marketwatch, MSCI.
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