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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Markets

Visualizing Major Layoffs At U.S. Corporations

This infographic highlights the accelerating pace of layoffs so far in 2022, as businesses cut costs ahead of a potential recession.

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Visualizing Major Layoffs at U.S. Corporations

Hiring freezes and layoffs are becoming more common in 2022, as U.S. businesses look to slash costs ahead of a possible recession.

Understandably, this has a lot of people worried. In June 2022, Insight Global found that 78% of American workers fear they will lose their job in the next recession. Additionally, 56% said they aren’t financially prepared, and 54% said they would take a pay cut to avoid being laid off.

In this infographic, we’ve visualized major layoffs announced in 2022 by publicly-traded U.S. corporations.

Note: Due to gaps in reporting, as well as the very large number of U.S. corporations, this list may not be comprehensive.

An Emerging Trend

Layoffs have surged considerably since April of this year. See the table below for high-profile instances of mass layoffs.

CompanyIndustryLayoffs (#)Month
PelotonConsumer Discretionary2,800February
FunkoConsumer Discretionary258April
RobinhoodFinancial Services~400April
Nektar TherapeuticsBiotechnology500April
CarvanaAutomotive2,500May
DomaFinancial Services310May
JP Morgan Chase & Co.Financial Services~500June
TeslaAutomotive200June
CoinbaseFinancial Services1,100June
NetflixTechnology300June
CVS HealthPharmaceutical208June
StartTekTechnology472June
FordAutomotive8,000July
RivianAutomotive840July
PelotonConsumer Discretionary2,000July
LoanDepotFinancial Services2,000July
InvitaeBiotechnology1,000July
LyftTechnology60July
MetaTechnology350July
TwitterTechnology<30July
VimeoTechnology72July
RobinhoodFinancial Services~795August

Here’s a brief rundown of these layoffs, sorted by industry.

Automotive

Ford has announced the biggest round of layoffs this year, totalling roughly 8,000 salaried employees. Many of these jobs are in Ford’s legacy combustion engine business. According to CEO Jim Farley, these cuts are necessary to fund the company’s transition to EVs.

We absolutely have too many people in some places, no doubt about it.
– Jim Farley, CEO, Ford

Speaking of EVs, Rivian laid off 840 employees in July, amounting to 6% of its total workforce. The EV startup pointed to inflation, rising interest rates, and increasing commodity prices as factors. The firm’s more established competitor, Tesla, cut 200 jobs from its autopilot division in the month prior.

Last but not least is online used car retailer, Carvana, which cut 2,500 jobs in May. The company experienced rapid growth during the pandemic, but has since fallen out of grace. Year-to-date, the company’s shares are down more than 80%.

Financial Services

Fearing an impending recession, Coinbase has shed 1,100 employees, or 18% of its total workforce. Interestingly, Coinbase does not have a physical headquarters, meaning the entire company operates remotely.

A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue declined significantly.
Brian Armstrong, CEO, Coinbase

Around the same time, JPMorgan Chase & Co. announced it would fire hundreds of home-lending employees. While an exact number isn’t available, we’ve estimated this to be around 500 jobs, based on the original Bloomberg article. Wells Fargo, another major U.S. bank, has also cut 197 jobs from its home mortgage division.

The primary reason for these cuts is rising mortgage rates, which are negatively impacting the demand for homes.

Technology

Within tech, Meta and Twitter are two of the most high profile companies to begin making layoffs. In Meta’s case, 350 custodial staff have been let go due to reduced usage of the company’s offices.

Many more cuts are expected, however, as Facebook recently reported its first revenue decline in 10 years. CEO Mark Zuckerberg has made it clear he expects the company to do more with fewer resources, and managers have been encouraged to report “low performers” for “failing the company”.

Realistically, there are probably a bunch of people at the company who shouldn’t be here.
– Mark Zuckerberg, CEO, Meta

Also in July, Twitter laid off 30% of its talent acquisition team. An exact number was not available, but the team was estimated to have less than 100 employees. The company has also enacted a hiring freeze as it stumbles through a botched acquisition by Elon Musk.

More Layoffs to Come…

Layoffs are expected to continue throughout the rest of this year, as metrics like consumer sentiment enter a decline. Rising interest rates, which make it more expensive for businesses to borrow money, are also having a negative impact on growth.

In fact just a few days ago, trading platform Robinhood announced it was letting go 23% of its staff. After accounting for its previous layoffs in April (9% of the workforce), it’s fair to estimate that this latest round will impact nearly 800 people.

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Agriculture

Which Countries Produce the Most Wheat?

Global wheat production is concentrated in just a handful of countries. Here’s a look at the top wheat-producing countries worldwide.

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Visualizing Global Wheat Production by Country (2000-2020)

Wheat is a dietary staple for millions of people around the world.

After rice and corn (maize), wheat is the third most-produced cereal worldwide, and the second-most-produced for human consumption. And considering wheat’s importance in the global food system, any impact on major producers such as droughts, wars, or other events, can impact the entire world.

Which countries are the largest producers of wheat? This graphic by Kashish Rastogi visualizes the breakdown of 20 years of global wheat production by country.

Top 10 Wheat Producing Countries

While more than 80 different countries produce wheat around the world, the majority of global wheat production comes from just a handful of countries, according to data from The Food and Agriculture Organization of the United Nations (FAO).

Here’s a look at the top 10 wheat-producing countries worldwide, based on total yield in tonnes from 2000-2020:

RankCountryContinentTotal yield (tonnes, 2000-2020)% of total (2000-2020)
#1🇨🇳 ChinaAsia & Oceania2.4 B17.0%
#2🇮🇳 IndiaAsia & Oceania1.8 B12.5%
#3🇷🇺 RussiaAsia & Oceania1.2 B 8.4%
#4🇺🇸 U.S.Americas1.2 B 8.4%
#5🇫🇷 FranceEurope767 M 5.4%
#6🇨🇦 CanadaAmericas571 M 4.0%
#7🇩🇪 GermanyEurope491 M3.5%
#8🇵🇰 PakistanAsia & Oceania482 M3.4%
#9🇦🇺 AustraliaAsia & Oceania456 M3.2%
#10🇺🇦 UkraineEurope433 M3.1%

China, the world’s largest wheat producer, has yielded more than 2.4 billion tonnes of wheat over the last two decades, making up roughly 17% of total production from 2000-2020.

A majority of China’s wheat is used domestically to help meet the country’s rising food demand. China is the world’s largest consumer of wheat—in 2020/2021, the country accounted for approximately 19% of global wheat consumption.

The second-largest wheat-producing country is India. Over the last two decades, India has produced 12.5% of the world’s wheat. Like China, India keeps most of its wheat domestic because of significant food demand across the country.

Russia, the world’s third-largest wheat producer, is also the largest global exporter of wheat. The country exported more than $7.3 billion worth of wheat in 2021, accounting for approximately 13.1% of total wheat exports that year.

Russia-Ukraine Impact on Global Wheat Market

Because Russia and Ukraine are both significant global wheat producers, the ongoing conflict between the two countries has caused massive disruptions to the global wheat market.

The conflict has had an impact on adjacent industries as well. For instance, Russia is one of the world’s major fertilizer suppliers, and the conflict has led to a global fertilizer shortage which could lead to food shortages worldwide.

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