Visualizing Market Dynamics: Year-End Guide to Market Trends

Rather than predicting future events or conducting a post-mortem analysis of recent months, we assert that events and their underlying dynamics evolve gradually. Examining data over market cycles can furnish a framework for capturing emerging trends and enhance our behavioral and fundamental approach to stock selection.

Central Banks Are Buying Gold

Since 2015, China has been progressively boosting its gold reserves while concurrently divesting from U.S. Treasuries. Central banks globally have stepped up gold purchases materially since Q1 2022 — a trend that accelerated following the freezing of Russian foreign reserves. This structural shift in reserve composition deserves attention: when the world's largest institutions hedge the dollar system, it is worth asking what they know.

$9.2 Trillion in Stocks Trading Above 10x Price-to-Sales

The total market cap of stocks trading above 10x price-to-sales has exceeded dot-com bubble levels, reaching $9.2 trillion as of December 2023. For context, this figure stood at $7.1 trillion at the peak of the dot-com era in 2000. This is not to say a correction is imminent — valuations can remain stretched for extended periods — but it is a data point that demands respect when sizing positions in high-multiple names.

Housing Demographics & The Interest Rate Paradox

Millennials and Gen Z own less of the housing market versus prior generations at their age — a structural demand deficit that will need to be resolved over time. Paradoxically, rising interest rates have actually strengthened consumer balance sheets for existing homeowners: interest income as a percentage of personal income is approaching $2 trillion, the highest level since the 1980s.

Commodities: The Unloved Asset Class

Commodities have been an unloved part of the market for the better part of the past decade. The ratio of the S&P Commodity Total Return Index versus the S&P 500 is at levels not seen since the 1960s. Supply underinvestment, energy transition pressures, and geopolitical fragmentation of global supply chains all represent potential catalysts for mean reversion.

The Fed Narrative is Turning

Money supply declined in 2023 — only the second time in the post-WWII era. But the narrative around Fed policy has shifted materially dovish over the final weeks of the year. Using NLP analysis of Fed communications, the proportion of dovish stories rose from 16% in December 2022 to 44% by December 2023. Markets are pricing in rate cuts in 2024.

*Originally published: Foundry Partners Thought Leadership, December 2023. Download the full report with charts on the Research page.*