The Permanent Crisis
October 22, 2024
Topic of the week:
The Great Depression, which occurred between 1929 and 1939 and which, among other things, led to the closure of thousands of banks and companies, is considered the greatest and longest economic crisis of the 20th century and, for many, of history, due to its great impact on stock prices, household finances, high unemployment rates, etc. However, the Great Depression prompted a series of economic and social changes which, together with the increase in demand favoured by the subsequent outbreak of the Second World War, led to years of great economic expansion and social welfare, the impact of which, to some extent, continues to this day.
However we already knew all this and too much time has passed since then, right? Why talk about the Great Depression now, with all that has already been written about it? Because it seemed to us a good ‘benchmark’ to compare with the period we have been living through since 2008 and which we could call The Permanent Crisis: perhaps, because we could say that it is a great crisis that has gone through different phases (global financial between 2008 and 2009, sovereign debt between 2010 and 2014, persistent fragility between 2015 and 2019, Covid-19 between 2020 and 2021, inflationary and energy between 2022 and 2023…) we have not been fully aware of the magnitude of the crisis and the impact it has had and is having on the economy, society, etc.
Because if the Great Depression ended in approximately ten years, this period we have called the Permanent Crisis has now lasted more than fifteen and, if we look at the horizon, taking into account the high level of war and geopolitical conflict, the fine balancing act in which central banks continue to move, the increase in inequalities and social unrest, the energy transition and the foreseeable changes related to AI and automation, etc., there seems to be no end in sight.
As we mentioned at the beginning, the world ‘relied’ on a great trigger, such as the World War, to leave behind the Great Depression and usher in an era of great economic and social prosperity, and if we take into account the geopolitical situation mentioned above, the advance of populism, etc., it seems that we may run the same risk and need another catastrophic trigger to force us to change course.
But, almost a century later and with all the achievements made in the past (welfare state, greater equality, access to education, a living wage, etc.), which the generalised pessimism in which we live often makes us minimise, we should be a much more mature society with more resources than then to find ‘other triggers’ that make us anticipate and lead us, by other means, to a new period of economic and social prosperity, etc., similar to that which occurred after the Great Depression.
There are many challenges ahead of us to bring this prolonged period of crisis to an end, which not only affects the economic sphere, but also social cohesion (greater polarisation, migratory crises, social exclusion), health (with an increasingly ageing population, the risk of pandemics, the increase in mental and/or lifestyle-related illnesses…), the environment (climate change, unsustainable consumption patterns…. ), technological progress (impact and adaptation to artificial intelligence, digital divide, cybersecurity…), geopolitics (lack of leadership, local and inter-country conflict, struggle for global supremacy among the major powers….), equality and sustainability of economic growth, etc.., So if we want to do this, without the need for a traumatic event to be the trigger, it seems clear that it should be done through innovation and creativity and not by desperately trying to keep alive an economic and social model based on consumerism and short-termism that has been showing signs of exhaustion for years and does not seem to have much further to go.
Surely there are other ways, but a change of model and a real shift in the broadest sense towards sustainability seems the best trigger so that this period we have called the Permanent Crisis can adopt a much friendlier, but also less traumatic, name in the history books in the future.
The beacon of the markets:
The main stock market indices ended the week on a positive note, although on this occasion the gains were limited, with the exception of the Ibex 35, which gained 1.75%. In the United States, the S&P 500 rose by 0.85% and reached its 45th all-time high of the year at 5,879.26 points, while the Nasdaq 100 was up by 0.26%. The exception among the major indices was the Euro Stoxx 50 which was weighed down by the weight of the luxury sector companies and ASML whose results and forecasts disappointed the market, losing 16%, which caused the index to fall -0.37%.
Up to last Friday, 71 companies of the S&P 500 presented results corresponding to the third quarter of 2024. The average increase in EPS (Earnings per share) was +3.6% vs the +5.1% that the market expected before the start of the presentations. So far 76% are better than the estimated results, 15% fail to reach them and 9% have been in line with expectations. Let’s remember that in the second quarter the estimate was an EPS growth of 9.1% and finally reached +14%.
In fixed income markets, macroeconomic data continued to favour the readjustment of expectations of additional cuts by the Fed, leaving the 10-year Treasury at 4.08% (+1 bps), virtually unchanged in the week. In Europe, the ECB’s lowering of interest rates (25 basis points, the third cut of the year) continued to reduce the cost of financing, with the Bund closing at a yield of 2.18% (-9 bps) and the Bono at 2.86 (-16 bps).
Gold seems unstoppable in 2024 and also set a new all-time high at 2,737.75 USD/Oz, the weekly close gave it a gain of 2.23%, and it is already up 31.6% for the year. For yet another week, uncertainty persists as to the price trend in the oil market, where Brent crude oil fell by -7.22% to close at 73.18 USD/b. The new downward estimates of global demand for 2024 have taken their toll on crude oil, which has experienced strong volatility in recent weeks, especially affected by the crisis in the Middle East, economic uncertainty in China and the consequences of the outcome of the US elections.
On the macroeconomic front, the few known references have had a significant positive impact on the markets. The ECB lowered interest rates again, which favoured lower debt yields, and the door was left open for two more adjustments before the end of the year. Inflation eased notably in Europe to 1.7% from 2.2% and core inflation took another step in the right direction at 2.7% as expected. In the US, the highlight was the retail sales data which surprised on the upside, rising by 0.4% against the 0.3% estimate and 0.1% previously, a further sign of the health of US domestic demand, and which has led the market to lower its December 2025 rate forecast by 60 bps, from 2.80% to the current 3.40%. Moreover, with the latest data, the Atlanta Fed raised its 3Q24 US GDP forecast to 3.4% (3.2% previously).
This week will once again be short on macroeconomic references. Highlights include the PMIs in Europe and the US, along with the presentation of the Fed’s Beige Book, which will indicate the state of the US economy’s health and expectations. In China, 1 and 5 year prime lending rates have been lowered again (yesterday, Monday) to -0.25%, which is slightly better than market expectations.
The quote:
And we say goodbye with the following quote from the Italian writer Cesare Pavese: ‘If you want to travel far and fast, travel light. Remove all envy, jealousy, resentment, selfishness and fear.
Summary of the performance of major financial assets (10/21/2024)
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