Key Macroeconomic Indicators
- GDP Growth:
- Expansionary phases favor equities; recessions boost bonds.
- China’s 6% GDP growth (2023) vs. Eurozone’s 0.5% impacted regional market performance.
- Inflation:
- Demand-Pull: Rising consumer spending (post-pandemic 2021–2022 inflation).
- Cost-Push: Supply shocks (2022 oil price spikes due to Ukraine war).
- Hyperinflation: Zimbabwe (2008) and Venezuela (2010s) saw equities outperform collapsing currencies.
- Unemployment: Low U.S. unemployment (3.5% in 2023) supports consumer spending and equity markets.
Central Bank Policies and Interest Rates
- Monetary Tools:
- Rate Hikes: The Fed raised rates from 0.25% (2022) to 5.5% (2023) to curb inflation, pressuring tech stocks.
- Quantitative Easing (QE): Post-2008 bond-buying programs boosted asset prices.
- Forward Guidance: Markets react to central bank statements (e.g., ECB’s “lower for longer” rates).
Geopolitical and Global Events
- Trade Wars: U.S.-China tariffs (2018–2020) disrupted tech supply chains, impacting Apple and semiconductor stocks.
- Pandemics: COVID-19 (2020) triggered a 34% S&P 500 drop but accelerated tech (Zoom) and pharma (Moderna) growth.
- Energy Crises: The 2022 EU energy crunch (Russia sanctions) spiked utility stocks and renewable energy ETFs.
Currency Dynamics and International Diversification
- Exchange Rates:
- A stronger USD (2022–2023) hurt multinationals (e.g., Coca-Cola’s European earnings).
- Purchasing Power Parity (PPP): The Big Mac Index highlights currency misalignments.
- Emerging Markets:
- High growth potential (India’s 6% GDP) but currency risks (Turkish lira lost 80% vs. USD since 2018).
- BRICS Nations: Brazil, Russia, India, China, and South Africa drive commodity demand.
Case Study: Japan’s “Lost Decade” (1990s) shows how deflation and aging demographics stagnate equity markets.
