These 6 Powerful Signals Reveal the Future Direction of Financial Markets
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These 6 Powerful Signals Reveal the Future Direction of Financial Markets

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Powerful signals reveal the future direction of financial markets

Every day, the Information Age bombards us with massive amounts of data.

Experts now estimate that there are 40 times more bytes of data in existence than there are stars in the whole observable universe.

And like the universe, our datasphere is also rapidly expanding—and every few years, there is actually more new data created than in all prior years of human history combined.

Searching for Signals

On a practical level, this dense wall of impenetrable data creates a multitude of challenges for investors and decision makers alike:

  • It’s mentally taxing to process all the available information out there
  • Too much data can lead to “analysis paralysis”—an inability to make decisions
  • Misinformation and media slant add another layer for our brains to process
  • Our personal biases get reinforced by news algorithms and filter bubbles
  • Data sources—even quality ones—can sometimes conflict with one another

As a result, it’s clear that people don’t want more data—they want more understanding. And for this reason, our team at Visual Capitalist has spent most of 2020 sifting through the noise to find the underlying trends that will transform society and markets over the coming years.

The end result of this effort is our new hardcover book “SIGNALS: Charting the New Direction of the Global Economy” (hardcover, ebook) which beautifully illustrates 27 clear signals in fields ranging from investing to geopolitics.

The 6 Signals Shaping the Future of Finance

What clear and simple trends will shape the future of markets?

Below, we show you a small selection of the hundreds of charts found in the book with a focus on global finance and investing:

#1: 700 Years of Falling Interest Rates

The first signal we’ll showcase here is from an incredible dataset from the Bank of England, which reconstructs global real interest rates going back all the way to the 14th century.

Falling real interest rates over 700 years

Some of the first data points in this series represent well-documented municipal debt issued in early Italian banking centers like Genoa, Florence, or Venice, during the beginning stages of the Italian Renaissance.

The early data sets of loans to noblemen, merchants, and kingdoms eventually merge with more contemporary data from central banks, and over the centuries it’s clear that falling interest rates are not a new phenomenon. In fact, on average, real rates have decreased by 1.6 basis points (0.016%) per year since the 14th century.

This same spectacle can also be seen in more modern time stretches:

Contemporary interest rates by country

And as the world reels from the COVID-19 crisis, governments are taking advantage of record-low rates to issue more debt and stimulate the economy.

This brings us to our next signal.

#2: Global Debt: To $258 Trillion and Beyond

The ongoing pandemic certainly made analysis trickier for some signals, but easier for others.

The accumulation of global debt falls into the latter category: as of Q1 2020, global debt sits at a record $258 trillion or 331% of world GDP, and it’s projected to rise sharply as a result of fiscal stimulus, falling tax revenues, and increasing budget deficits.

Rising Global Debt

The above chart takes into consideration consumer, corporate, and government debt—but let’s just zoom in on government debt for a moment.

The below data, which is from early 2020, shows government debt ballooning between 2007 and early 2020 as a percentage of GDP.

Ballooning government debt

This chart does not include intragovernmental debt or new debt taken on after the start of the pandemic. Despite this, the percentage increase in debt held by some of these governments is in the triple digits over a period of only 13 years, including the 233% increase in the United States.

But it’s not just governments going on a borrowing spree. The following chart shows consumer debt over a recent four-year span, sorted by generation:

Average household debt by generation

While Baby Boomers and the Silent Generation are successfully winding down some of their debt, younger generations are just getting aboard the debt train.

Between 2015-2019, Millennials added 58% to household debt, while Gen Xers find themselves (in the middle of their mortgage-paying years) as the most indebted generation with $135,841 of debt per household.

#3: Blue Chips and the Circle of Life

There was a time when it seemed absolutely unfathomable that large, entrenched companies could see their corporate advantages slide away.

But as the recent collapses of Blockbuster, Lehman Brothers, Kodak, or various retailers have taught us, there are no longer any guarantees around corporate longevity.

Average company lifespan on S&P 500

In 1964, the average tenure of a company on the S&P 500 was 33 years, but this is projected to fall to an average of just 12 years by the year 2027 according to consulting firm Innosight.

At this churn rate, it’s expected that 50% of the S&P 500 could turnover between 2018-2027.

Churn of S&P 500 companies

For established companies, this is a sign of the times. Between the rapid acceleration in the speed of innovation and continuously falling barriers to market entry, the traditional corporate world finds itself playing defense.

For investors and startups, this is an interesting prospect to consider, as disruption now appears to be the status quo. Could the next big company to dominate global markets be found in someone’s garage in India today?

If you like this post, find hundreds of charts
like this in our new book “Signals”:


Signals: Book

#4: ESG is the New Status Quo

The investment universe has reached an interesting tipping point.

Historically, performance was all the mattered to most investors—but going forward, considering ESG criteria (environment, social, and governance) is expected to become a default component of investment strategy as well.

Esg assets as percentage of total

By the year 2030, it’s expected that a whopping 95% of all assets will incorporate ESG factors.

While this still seems far away, it’s clear that change is already happening in the investment sphere. As you can see in the following graphic, the percentage of ESG assets has already been rising by trillions of dollars per year globally:

Sustainable investing assets esg

If you think this is a powerful trend now, wait until Millennials and Gen Z investors sink in their teeth. Both generations show a higher interest in sustainable investing, and both are already more likely to incorporate ESG factors into existing portfolios.

Projected aggregate income by generation

Companies are getting in front of the ESG investing trend, as well.

In 2011, just 20% of companies on the S&P 500 provided sustainability reports to investors. In 2019, that percentage rose to 90%—and with the world’s biggest asset managers already on board with ESG, there’s pressure for that to hit 100% in the coming years.

#5: Stock Market Concentration

In the last 40 years, the U.S. market has never been so concentrated as it is now.

Big tech five stocks as a percentage of S&P 500

The top five stocks in the S&P 500 have historically made up less than 15% of the market capitalization of the index, but this year the percentage has skyrocketed to 23%.

Not surprisingly, it’s the same companies—led by Apple and Microsoft—that propelled market performance the previous year.

Tech stocks by percentage of 2019 stock market return

Looking back at the top five companies in the S&P 500 over time helps reveal an important component of this signal, which is that it’s only a recent phenomenon for tech stocks to dominate the market so heavily.

Tech stocks each year

#6: Central Banks: Between a Rock and a Hard Place

Since the financial crisis, central banks have found themselves to be in a tricky situation.

As interest rates close in on the zero bound, their usual toolkit of conventional policy options has dried up. Traditionally, lowering rates has encouraged borrowing and spending to prop up the economy, but once rates get ultra-low this effect disappears or even reverses.

Treasury yields vs. household spending

The pandemic has forced the hand of central banks to act in less conventional ways.

Quantitative easing (QE)—first used extensively by the Federal Reserve and European Central Bank after the financial crisis—has now become the go-to tool for central banks. By buying long-term securities on the open market, the goal is to increase money supply and encourage lending and investment.

In Japan, where QE has been a mainstay since the late-1990s, the Bank of Japan now owns 80% of ETF assets and roughly 8% of the domestic equity market.

Central bank assets rising

As banks “print money” to buy more assets, their balance sheets rise concurrently. This year, the Fed has already added over $3.5 trillion to the U.S. money supply (M2) as a result of the COVID-19 crisis, and there’s still likely much more to be done.

Regardless of how the monetary policy experiment turns out, it’s clear that this and many of the other aforementioned signals will be key drivers for the future of markets and investing.

If you like this post, find hundreds of charts
like this in our new book “Signals”:


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Energy

The Periodic Table of Commodity Returns (2012-2021)

Energy fuels led the way as commodity prices surged in 2021, with only precious metals providing negative returns.

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commodity returns 2021 preview

The Periodic Table of Commodity Returns (2022 Edition)

For investors, 2021 was a year in which nearly every asset class finished in the green, with commodities providing some of the best returns.

The S&P Goldman Sachs Commodity Index (GSCI) was the third best-performing asset class in 2021, returning 37.1% and beating out real estate and all major equity indices.

This graphic from U.S. Global Investors tracks individual commodity returns over the past decade, ranking them based on their individual performance each year.

Commodity Prices Surge in 2021

After a strong performance from commodities (metals especially) in the year prior, 2021 was all about energy commodities.

The top three performers for 2021 were energy fuels, with coal providing the single best annual return of any commodity over the past 10 years at 160.6%. According to U.S. Global Investors, coal was also the least volatile commodity of 2021, meaning investors had a smooth ride as the fossil fuel surged in price.

Commodity2021 Returns
Coal160.61%
Crude Oil55.01%
Gas46.91%
Aluminum42.18%
Zinc31.53%
Nickel26.14%
Copper25.70%
Corn22.57%
Wheat20.34%
Lead18.32%
Gold-3.64%
Platinum-9.64%
Silver-11.72%
Palladium-22.21%

Source: U.S. Global Investors

The only commodities in the red this year were precious metals, which failed to stay positive despite rising inflation across goods and asset prices. Gold and silver had returns of -3.6% and -11.7% respectively, with platinum returning -9.6% and palladium, the worst performing commodity of 2021, at -22.2%.

Aside from the precious metals, every other commodity managed double-digit positive returns, with four commodities (crude oil, coal, aluminum, and wheat) having their best single-year performances of the past decade.

Energy Commodities Outperform as the World Reopens

The partial resumption of travel and the reopening of businesses in 2021 were both powerful catalysts that fueled the price rise of energy commodities.

After crude oil’s dip into negative prices in April 2020, black gold had a strong comeback in 2021 as it returned 55.01% while being the most volatile commodity of the year.

Natural gas prices also rose significantly (46.91%), with the UK and Europe’s natural gas prices rising even more as supply constraints came up against the winter demand surge.

Energy commodity returns 2021

Despite being the second worst performer of 2020 with the clean energy transition on the horizon, coal was 2021’s best commodity.

High electricity demand saw coal return in style, especially in China which accounts for one-third of global coal consumption.

Base Metals Beat out Precious Metals

2021 was a tale of two metals, as precious metals and base metals had opposing returns.

Copper, nickel, zinc, aluminum, and lead, all essential for the clean energy transition, kept up last year’s positive returns as the EV batteries and renewable energy technologies caught investors’ attention.

Demand for these energy metals looks set to continue in 2022, with Tesla having already signed a $1.5 billion deal for 75,000 tonnes of nickel with Talon Metals.

Metals price performance 2021

On the other end of the spectrum, precious metals simply sunk like a rock last year.

Investors turned to equities, real estate, and even cryptocurrencies to preserve and grow their investments, rather than the traditionally favorable gold (-3.64%) and silver (-11.72%). Platinum and palladium also lagged behind other commodities, only returning -9.64% and -22.21% respectively.

Grains Bring Steady Gains

In a year of over and underperformers, grains kept up their steady track record and notched their fifth year in a row of positive returns.

Both corn and wheat provided double-digit returns, with corn reaching eight-year highs and wheat reaching prices not seen in over nine years. Overall, these two grains followed 2021’s trend of increasing food prices, as the UN Food and Agriculture Organization’s food price index reached a 10-year high, rising by 17.8% over the course of the year.

Grains price performance 2021

As inflation across commodities, assets, and consumer goods surged in 2021, investors will now be keeping a sharp eye for a pullback in 2022. We’ll have to wait and see whether or not the Fed’s plans to increase rates and taper asset purchases will manage to provide price stability in commodities.

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Technology

Apple’s Colossal Market Cap as it Hits $3 Trillion

Apple’s market cap recently hit $3 trillion. To put that scale into context, this visualization compares Apple to European indexes.

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apple 3 trillion market cap

Apple’s Colossal Market Cap in Context

In January of 2019, Apple’s market capitalization stood at $700 billion.

While this was perceived as a colossal figure at the time, when we fast forward to today, that valuation seems a lot more modest. Since then, Apple has surged to touch a $3 trillion valuation on January 3rd, 2022.

To gauge just how monstrous of a figure this is, consider that Apple is no longer comparable to just companies, but to countries and even entire stock indexes. This animation from James Eagle ranks the growth in Apple’s market cap alongside top indexes from the UK, France, and Germany.

Let’s take a closer look.

Apple Takes On Europe

The three indexes Apple is compared to are heavyweights in their own right.

The FTSE 100 consists of giants like HSBC and vaccine producer AstraZeneca, while the CAC 40 Index is home to LVMH, which made Bernard Arnault the richest man in the world for a period of time last year.

Nonetheless, Apple’s market cap exceeds that of the 100 companies in the FTSE, as well as the 40 in each of the CAC and DAX indexes.

Stock/IndexMarket Cap ($T)Country of Origin
Apple$3.00T🇺🇸
FTSE 100$2.90T🇬🇧
CAC 40 Index$2.76T🇫🇷
DAX 40 (Dax 30) Index*$2.50T🇩🇪

*Germany’s flagship DAX Index expanded from 30 to 40 constituents in September 2021.

It’s important to note, that while Apple’s growth is stellar, European companies have simultaneously seen a decline in their share of the overall global stock market, which helps make these comparisons even more eye-catching.

For example, before 2005, publicly-traded European companies represented almost 30% of global stock market capitalization, but those figures have been cut in half to just 15% today.

Here are some other approaches to measure Apple’s dominance.

Apple’s Revenue Per Minute vs Other Tech Giants

Stepping away from market capitalization, another unique way to measure Apple’s success is in how much sales they generate on a per minute basis. In doing so, we see that they generate a massive $848,090 per minute.

Here’s how Apple revenue per minute compares to other Big Tech giants:

CompanyRevenue Per Minute
Amazon$955,517
Apple$848,090
Alphabet (Google)$433,014
Microsoft$327,823
Facebook$213,628
Tesla$81,766
Netflix$50,566

Furthermore, Apple’s profits aren’t too shabby either: their $20.5 billion in net income last quarter equates to $156,000 in profits per minute.

How Apple Compares To Countries

Lastly, we can compare Apple’s market cap to the GDP of countries.

Country (excluding Apple)Total Value ($T)
Apple$3.0T
Italy$2.0T
Brazil$1.8T
Canada$1.7T
Russia$1.7T
South Korea$1.6T
Australia$1.4T
Spain$1.4T
Mexico$1.3T
Indonesia$1.1T

What might be most impressive here is that Apple’s market cap eclipses the GDP of major developed economies, such as Canada and Australia. That means the company is more valuable than the entire economic production of these countries in a calendar year.

That’s some serious scale.

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