“2024 will be the year of soft landing. The scenario is largely discounted by consensus, although there is a certain margin of uncertainty on the nuances that will characterize it”. It’s the prediction Marco PiersimoniSenior Investment Manager of Pictet Asset Management, which focuses on the evolution of growth and its impact on inflation. “The theory would be based on the prevalence of dynamics of the “supply side”, according to which much of what has happened in the post-Covid period derives from fluctuations in supply, first held back by lockdowns, then released and now being normalized with respect to demand. In this context, inflation could likely continue to converge rapidly towards the target,” he underlined.
European and American dynamics
“Back to consensus, as far as that goes Europe is unbalanced towards a slight recessive riskwhich could worsen if existing geopolitical tensions worsen further. Inflation of the euro area is expected to decline close to the 2% target, unless there are new exogenous shocks (for example on energy)”, points out Piersimoni. On the US front, the estimates are more divergent: most analysts estimate growth close to potential and with decreasing inflation, but still far from the 2% target. “Overall – states the Senior Investment Manager of Pictet Asset Management –, the US economic system continues to show a extraordinary elasticity and flexibility, which is allowing a recovery in productivity gains (1.5%). The latter, which has risen to 2.4% above the historical trend (1.5%), keeps pace (indeed exceeds the trend) of real wages, which in turn have finally returned to positive territory (around 1%) thanks to Nominal wages increased by 4.1% with inflation at 3.1%. This configuration contributes to the stability of company margins (and therefore supports share valuations)”.
As for the rest of the world, Piersimoni points out that there will be some over the course of the year elections which will engage well 54 countries. Among the most important events are Indonesia, Taiwan, Korea, India and South Africa, to which must be added the elections of European Parliament, United Kingdom, United States and Mexico: “not all of them will have significant market implications. The elections in Taiwan and those in South Africa represent critical elements, where we could witness policy changes“. China deserves a separate discussion, on which there are many question marks, which is why Piersimoni suggests caution.
The point about the Magnificent 7
The Magnificent Seven they determined 600 points of the thousand points of progress of the S&P 500 over the past year (today at an altitude of 4800). The 7 companies belong to three different industries: Information Technology (Microsoft, Apple, Nvidia), discretionary consumption (Amazon and Tesla) and telecommunications services (Google and Meta). “Looking at the earnings revisions and the surprises that generated these performances, even sector analysis is not enough, we need to go down to the detail of the individual stock. Each had a different destiny: for some there were no revisions, for others upward adjustments and for a couple even downwards”, underlines Piersimoni. “It’s a theme of perspectives: The relative ratings of the Magnificent 7 do not show excesses compared to earnings dynamics. The current picture is very different from that of 2000: the protagonists were well-managed companies, with exceptionally solid financial fundamentals and characterized by considerable corporate profitability. As time goes by, the topic of AI will evolve, the protagonists will evolve and selection skills will be needed“, he concludes.