As I apparently never tire of writing, the key determinant of the price of anything is the availability of substitutes. For stocks, as liquid investments, the obvious substitutes are cash and bonds. Both these fixed income categories are yielding around 5% now. Assuming, as I do, markets are feeling confident enough to begin to incorporate into today’s prices prospects for 2024, and that earnings will be higher next year than this, stocks and bonds would seem to me to be roughly equivalent value vs. one another–with maybe a slight edge to stocks.

2024 is a national election year in the US, a time when the incumbent typically tries to keep the economy perking along, on the idea that the ruling party’s fortunes will wax and wane with GDP. Given the level of pandemic-related stimulus of the Biden administration, and the ideological commitment of the Republican-led House to reduce government outlays, that’s not a sure bet now, though.

In addition, population growth has shrunk in recent times to about 0.5%. And many areas seem to be imposing restrictions on what can be taught in schools. Given that GDP growth is driven either by having more workers or by workers becoming more skilled, chances are that even 2% GDP growth next year may be a stretch.

However, one of the key characteristics of the US stock market, and those of most other OECD countries as well, is that publicly traded companies typically get large streams of income from outside the home country. In the case of the US, where I think disclosure of foreign income is really spotty, the figure appears to me to be about 50%. Although China remains a big question mark, my guess is still that having a global market will generally be a plus in 2024.

A second major consideration is the hangover from the zero-interest-rate pandemic party. We’ve already seen at least some of the negative effects on hard partiers like Silicon Valley Bank or mega-deal real commercial/office real estate developers. I suspect there’s still a lot of excess inventory in the retail supply chain, as well. So I suspect 2024 will be about picking and choosing individual companies rather than trying to ride broad conceptual themes.

more tomorrow