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To Stocks

This year’s been all about inflation, interest rates, and recession fears. Next year, the economic backdrop just might be calmer. If it is, then maybe – just maybe – investors can focus on company fundamentals again.

👀 WHAT JUST HAPPENED?

Epic scored a victory royale against tech titan Google and its Play Store’s fees.
Inflation edged ever so slightly lower in November.
The Federal Reserve (the Fed) held interest rates steady, but hinted at multiple rate cuts next year.

Europe

The UK economy shrank in October, catching economists off guard.
The Bank of England (BoE) held rates steady, but didn’t hint at any rate cuts.
And it was the same at the European Central Bank (ECB). Economies in the bloc may be teetering, but the central bank’s still worried inflation might have a sting in its tail.

Asia

Pork prices fell in China, reviving worries about a deflationary spiral.

✍️ What does all this mean?

The biggest US company news last week came out of the courtroom. Epic Games – maker of viral tweenage fave Fortnite – accused Google of abusing its dominance and taking too deep a cut from in-app purchases (between 15% and 30%), and won. And it was probably a bit against the odds too. That’s because an identical lawsuit thrown at Apple was firmly batted down by a jury back in 2020. Google’s now in wait-and-see mode, hanging on for directions from the judge. Those could include making it easier for other app stores (presumably with different payment options and taking a smaller cut) to be loaded onto Android phones. Apple will be watching closely: that rumored slice of the action is a big deal for the firm’s all-important services business.

Outside of the courtroom, the focus was still inflation, growth, and interest rates. US prices cooled ever-so-slightly. But the Federal Reserve (Fed) made the biggest headlines, keeping rates unchanged but hinting at three potential interest rate cuts next year. And, sure, that’s fewer than market participants expect, but the Fed’s been saying the opposite for most of the year, so this “pivot” was cheered loudly by the stock and bond markets. The Dow Jones hit an all-time high, and the other indexes were hot on its heels.

The British economy unexpectedly shrank in October, compared to September, sparking new recession fears. The Bank of England (BoE), then, would undoubtedly like to follow the Fed’s lead and start talking about chopping interest rates, but inflation there is still a bit too hot for that. That’s why the central bank kept rates where they are, with not a whisper about cuts. The mood’s similar over at the European Central Bank (ECB). Despite recent data showing inflation is dropping like a stone, the Bank stuck firmly to its higher-for-longer interest rate tune. Mind you, that’s what the Fed was saying too, just weeks ago.

China, meanwhile, is plowing a lonely furrow. The Chinese economy is stalling after a decent ascent early in the year, and now prices are falling. And that is igniting fears of outright deflation: inflation’s uglier and more stubborn cousin. It’s a potentially disastrous scenario. So the calls for China to pull out its big, economy-stimulus bazooka are only growing louder.

Private investments just got a little less private

Private-equity-backed businesses often harness an industry’s most disruptive tech – and the most ambition.

They also provide access to sectors and parts of the economy that public portfolios can’t reach. Healthcare, for one, has relied on private investment to develop innovative medical solutions.

Privately backed education technology is transforming how students access and structure their education. And revolutionary AI-based products may never reach the stock market.

But the individual investor isn’t doomed to miss out on these unique, disruptive, private businesses – and the returns they make.

By buying shares in OCI, a publicly listed company that invests in private equity funds, you too could share in the winnings. After all, OCI’s shares have risen 150% in the last five years.

Find Out More

Past performance is not a guarantee, projection or prediction and is not necessarily indicative of future results. The ability to achieve successful results depends on a number of factors, and the past performance of the Oakley Funds and the investments on which Oakley Capital Limited has advised may not necessarily be repeated.

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🔍 This week’s focus: 2024, year of the stock

Stock-picking enthusiasts leap into January, hoping for steady macroeconomic conditions, so they can focus squarely on sorting the good stocks from the bad. And that works out great until moments later when some unforeseen, negative economic event comes along to distract them. But – happy new year – that might not happen this year. The odds of the US nailing the so-called soft landing (that is: when higher interest rates bring down hot inflation without triggering a recession) have narrowed a lot recently, and right now it’s seen as the most likely outcome. What that means is that investors might be able to knuckle down and focus on company fundamentals for a change.

And when you look at stock investing from that “bottom-up” perspective, things look remarkably sunny. Take the forecasts for S&P 500 profit growth, for example. The latest analyst survey from data firm FactSet suggests profit growth of 12% for 2024. If (a big if) that’s right, it’d be considerably better than the index’s long-run 8% average, and miles better than anyone would have thought at the start of 2023. But, look, investing all boils down to profit growth. The economy can be very bad, but if profit goes up over time, stock prices should too – although, obviously, they’re somewhat linked.

Now, looking a bit closer, those FactSet estimates see every sector in the S&P 500 index enjoying profit growth next year, from healthcare – forecast to churn out nearly 20% growth – down to real estate – predicted to grow 3%. And another thing, while revenues are predicted to grow too, they’re expected to grow at about half the pace of profit. That can only happen if profit margins fatten up. That’s a massive win for US companies and at least some proof that they’re able to cope with whatever the economy throws at them. No wonder stock prices are breaking records.