Charts of the Week

Equity risk premiums: US stocks seem unrewarding versus bonds

Stocks are supposed to be riskier than bonds in exchange for higher returns over time. However, in the US, that risk comes with less reward these days. With interest rates holding near the highest in almost two decades, portfolio allocation between bonds and stocks is more important than ever. 

This chart creates a simplified “equity risk premium” for US stocks: it subtracts the 10-year Treasury yield from the equity earnings yield. A negative reading (last experienced in 2002) means bonds in fact returned more than stocks.

We aren’t back there yet, but we are close. Last year, the risk premium dropped through its 2007 low, and we are barely above zero. 

Today, equity valuations remain high, and bond yields have risen significantly, limiting the excess returns investors can generate from stocks.

Equity risk premiums: China – an attractive entry point? 

The picture is quite different in China. The equity risk premium has surpassed 5 percent. Soon, it might be more than two standard deviations away from the average.

(Our charts use color-coding to denote standard-deviation ranges from the norm.)

As China loosens monetary policy while {{nofollow}}stock prices remain in the doldrums, the unpopular equities market appears to be at its most attractive entry point since 2008.

Speaking of 2008 (and 2007), note how the equity rate premium swings outside the two-standard-deviation range in both directions during and after the global financial crisis – showing the effect that a crash, crisis-fighting rate cuts and the first stages of recovery can have on this measure.

Equity risk premiums: Brazil – a different world

Like China, Brazil also appears to offer an attractive entry point for stocks. The equity risk premium has wavered near a multi-decade high since 2019. 

What’s notable is how different the average ERP is for Brazil over the past 22 years: negative 2 percent, versus positive 3 percent in the US. Bonds are historically more attractive than stocks given the risks.

As inflation has historically been much higher in Brazil, so have 10-year government bond yields. But in recent years, equity earnings yields have improved markedly.

Business confidence clocks: German doldrums

Our second trio of charts use the “business cycle clock” visualization, which tracks an economy through expansion, downswing, contraction and upswing phases. 

They rely on the results of local surveys of executive sentiment, plotting a month-on-month trajectory using two variables: month-on-month change (the X axis) and the Z-score, i.e. the latest reading’s statistical divergence from the three-year average (the Y axis). 

Business confidence in Germany remains in the doldrums, as this “clock” shows. We’ve broken down Europe’s largest economy into services, consumer, construction, industrial and retail sectors for greater granularity.

All sectors are in contraction. The consumer sector was in an upswing, but that just ended. A potential retail recovery stalled in mid-2023.

Business confidence clocks: Mostly optimism in Spain

This trio of charts also focuses on the eurozone, demonstrating the challenge of running a single monetary policy for divergent economies. 

Even after the 2022-23 run of rate hikes, Spain’s “clock” looks quite healthy by comparison to Germany.

The consumer sector is an outlier, much weaker historically than its peers and heading from upswing to contraction. Services and industrial sectors are expanding. Construction and retail are only just in downswing territory. 

Business confidence clocks: a mixed picture in Italy

Our Italian “clock” is notable for how dispersed the various business sectors are, as opposed to the more uniform trends in Germany and Spain.

Retail and construction business confidence remain high in absolute terms, though both are straddling the line between expansion and downturn. Services confidence is right on the historic average, with little change month-on-month. And the industrial sector is in the grip of sustained deterioration. The consumer sector had recovered from a much worse downturn than the other sectors, but its recovery is stalling.

The UK: stagnant, but improving?

Recession pressure: 60% 

One of the steepest, fastest and most globally synchronized monetary tightening cycles in history has come to an end. (Or so it seems.) Will a global recession be the result?

Compared with the middle of last year, prospects for a recession in Britain seem to be receding. 

However, the economy remains in rather morose state, with a prevalence of red and yellow cells in the most recent columns of our dashboard. 

(The “heat-mapping” of all figures in these dashboards tracks their deviations from decades of historic data.)

We last calculated a recession pressure indicator in December. As the January indicators trickle in, job growth and business confidence are improving. Some indicators, like housing, are benefiting from a shift from dark red to “pink.”

Germany: danger zone

Recession pressure: 87% 

Germany’s economy has suffered for some time from the disruption of its industrial model, which relied on expanding globalization and cheap energy from Russia. 

As the trajectory of our recession indicator shows, its economic indicators are getting even worse. On Jan. 30, the national statistics office said {{nofollow}}the economy indeed shrank in the final three months of 2023, though {{nofollow}}revisions mean Germany narrowly avoided a technical recession (two consecutive quarters of contraction).

Most of our dashboard is flashing red, with a measure of cargo shipping the only recent bright spot. New orders, inflation and capacity utilization remain problematic. Data trickling in for January is showing a worsening job market and receding business confidence.

Australia: still lucky

Recession pressure: 43%

Resource-rich Australia is famous for having avoided recession in the 30 years between the early 1990s and the pandemic. Even its {{nofollow}}Covid-19 downturn was less severe than those of its peers in developed markets.

According to our dashboard, the nation looks set to remain the “lucky country” versus the rest of the economies we examined. 

While consumer confidence remains weak, optimistic trends in the stock market, a robust labor market and healthy terms of trade for the nation’s critical commodity exports have pushed chances of recession down. 

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South Korea: a semiconductor bright spot

Recession pressure: 75%

South Korea’s recession pressure level is elevated relative to several Asian peers. The export-driven economy has suffered amid weakness in its key Chinese market. Business confidence and e-commerce indicators have been worsening. 

Still, things have improved since early 2023, when our indicator surpassed 90% and a recession seemed certain. The key semiconductor industry is also worth watching; it recently tipped into green on our dashboard. 

Japan: rising sun, blue skies

Recession pressure: 50%

Japan’s economy is a global outlier: its central bank is expected to raise rates, and it’s chasing a positive wage-price spiral. 

Corporate credit indicators are in good shape, and consumer confidence is improving. New orders and capacity utilization remain relatively weak. ‍

China: a mixed picture

Recession pressure: 64% 

China’s dashboard offers a striking contrast of some bright green and more red. 

The labor market is improving. And we’ve previously pointed out the nation’s healthy OECD leading indicator, a data point whose components include early-stage production – though that has now weakened for January. 

Negative signals are coming from household credit and confidence measures for consumers and small business. And even after a series of crises in the property market, the residential housing price index continues to deteriorate.

Brazil: unexpected growth

Recession pressure: 47% 

Returning Brazilian President Lula has had good economic news since he took office. December figures showed the economy unexpectedly grew in the third quarter.

Our recession gauge has steadily receded over the past year, and the dashboard looks a lot like the national soccer jersey lately, showing mostly green and yellow cells for December and January. The OECD leading indicator and manufacturing figures are historically healthy.

Canada: resource pressure, worried consumers

Recession pressure: 82% 

The economies of Canada and the US are closely intertwined, but our dashboard has been suggesting for a year that the Great White North is much likelier to stumble into recession.

While employment and inflation trends seem positive, consumer confidence remains in the doldrums. Business confidence is in the red, receiving only a small uplift from the positive economic figures south of the border recently. 

Meanwhile, Canada’s key resource sector is under growing pressure: the “commodity terms of trade” indicator (compiled by Citigroup) slid from positive into neutral territory over the three most recent readings.

The US revisited: pondering a soft landing

Recession pressure: 71% 

We wrap up this chart pack by revisiting our US dashboard. Compared with two weeks ago, new and revised data has given us a more complete picture. Our recession indicator for December has crept somewhat higher (from 60%). 

Is a recession inevitable, or will Fed Chair Jay Powell pull off his coveted soft landing? Or, a third possibility: will continued robust inflationary growth after all these rate hikes wrong-foot the markets and central bankers?

As we noted in January, some leading economic and financial indicators (such as the NFIB’s small-business confidence index) seem to have bottomed out earlier in 2023, bolstering the case for a soft landing. 

Data trickling in for January has been positive overall versus historic norms: unemployment, consumer confidence, even truck sales.

However, the inverted yield curve, a classic recession indicator, is still flashing bright red – especially after Chair Powell downplayed rate-cut prospects.

Hawkish and dovish central banks – and the one-size-fits-all ECB dilemma

Rate cuts are priced in around the world this year. However, there has been some recent pushback on those expectations: {{nofollow}}Jerome Powell suggested Fed watchers shouldn’t expect a cut in March.

‍This chart assesses the relative hawkishness of various central banks by taking their key interest rate and subtracting core inflation to get a sense of their “real” policy stance. In the case of the UK and Australia, inflation and the policy rate match: a true neutral stance.

The presence of Latin American countries on the left-hand side is notable. Last year, we named Brazil and Mexico as “early hikers:” their central banks have had more history of steeply raising rates to fight inflation in recent decades than their developed-market peers.

However, green bars don’t just reflect tough policy: they can be a consequence of speedily cooling inflation, as seems to be the case for Canada and India.

Unsurprisingly, Japan is at the right-hand side of the chart: still running a negative interest-rate policy even as price increases pick up, as the central bank awaits a “virtuous” wage-price spiral.

Ireland and Finland are also notable due to their elevated inflation, showing the challenges of the European Central Bank’s one-size-fits-all monetary policy for 20 countries.

Emerging market fund flows rediscover China

This chart requires a subscription to the EPFR Fund Flow add-on database.

Stock markets in {{nofollow}}mainland China and Hong Kong have been slumping to multi-year lows.

However, equity fund flows into China have spiked higher lately, with asset managers perhaps lured by cheap valuations.

Data from {{nofollow}}EPFR is showing that weekly fund flows into emerging-market equities have picked up. As the spike in our chart shows, they reached a {{nofollow}}multi-year high of USD 12.5 billion in the week through Jan. 24. The inflows fell off somewhat last week, but are still high when compared to the last two years.

As the top pane of our chart shows, this can be broken down to show how that entire gain is headed to Asian equities – especially China.

The second panel shows how institutional investors account for all of that influx: retail investors are, in fact, pulling their money.

China’s property woes continue

The difficulties in China’s property market continue. The most recent development is the {{nofollow}}liquidation order from a Hong Kong court received by former mega-developer Evergrande. China is unveiling {{nofollow}}support measures as a result.

This chart visualizes Chinese housing diffusion indices we created for new and existing homes, incorporating month-on-month changes in primary and secondary residential prices for 70 major cities. A reading of 50 indicates prices were unchanged.

The index for existing homes just touched zero for the first time since 2014; the new housing measure is not far behind.

When the rate drops, stocks can have a delayed reaction

As Mr. Powell indicates he won’t hurry towards a policy pivot, this “mixing board” chart analyzes history for a sense of what might await US stock investors when they finally get a rate cut.

It measures the response by the S&P 500 three, six and 12 months after the first rate cut in various cycles. Interestingly, the initial response is often not that positive; this was especially the case in the high-inflation 1970s and early 1980s.

After six months, most cycles saw improved performance. And after a year, the gains were usually quite strong: only the post-1989 and post-1974 cycles saw truly weak markets.

Nations fight corruption perceptions while others backslide

Transparency International recently released its Corruption Perceptions Index for 2023. It examines perceived levels of public-sector malfeasance for more than 180 countries, scoring them on a scale of 0 (highly corrupt) to 100 (very clean).

Our dashboard identifies two lists of 20 countries: those that made the greatest progress fighting corruption, and those perceived to be backsliding the most. 

By absolute corruption score, Egypt and Zambia remain in the bottom half of the world’s nations. But the two countries made the most relative progress, advancing by 22 and 18 places respectively. ({{nofollow}}Egypt has made up ground that it lost last year. Zambia, meanwhile, saw the {{nofollow}}arrest of a former president’s son on corruption charges in 2023, as well as an incident that prompted {{nofollow}}the resignation of its foreign minister.)

The US pivot to gas (and, slowly, renewables)

This chart uses data from the Energy Information Administration to break down all of the energy produced in America, whether it’s consumed domestically or exported. 

Our visualisation shows how the shale revolution transformed the US energy mix. From 2005, {{nofollow}}natural-gas production rose for 10 straight years, making the US the world’s biggest producer. (And in the wake of the Russia-Ukraine war, US gas producers now have a lucrative European market for liquefied exports.)

Shale drilling also made the US the world’s largest oil producer. Since the “peak oil” worries in the mid-2000s, crude has regained the share of US energy production that it had in the early 1980s.

The other key trend is climate-friendly: the decline of coal. In 2008, it represented 33% of American energy production. By last year, that figure had shrunk to 11%. Net Zero campaigners might also appreciate the steadily rising share of renewables, which is approaching 10%.

Despite the renewed, climate-driven wave of enthusiasm for nuclear power, its proportion of the national energy mix has shrunk somewhat since the 2000s. 

The intricate dance between rate moves and equities

‍‍Lower interest rates are broadly perceived as good for stocks: stimulus for the economy and an implication that inflation is under control should be good for corporate earnings. But the relationship is intricate.

This chart expresses the relationship between Federal Reserve hikes and cuts since 1970 and the S&P 500 performance that preceded every move by the central bank – as expressed by the bubble size and colour.

The pre- and post-2000 environments look strikingly different. Not only were rates much higher, but there were fewer outsized market moves. The preponderance of green in the 1980s and 1990s reflects long bull markets, interrupted by the large red bubble of the 1987 crash.

Post-2000, what’s most visible is the gap – seven years that rates spent at zero between 2008 and 2015 – and two large green bubbles. Very sharp gains preceded the Fed’s moves to slash rates to nothing during the GFC and the pandemic, suggesting the market was pricing in the Fed’s hyper-stimulative response to crisis.

A recession dashboard to fact-check prospects for a soft landing

{{nofollow}}“It won’t be a recession; it will just feel like one,” the Wall Street Journal wrote this month. But downside risks shouldn’t be overlooked.

We created a dashboard that tracks 19 variables and then compiles our own “recession pressure” gauge. It assesses macroeconomic indicators from labour to house prices and adds important signals from the financial markets, such as the yield-curve slope and S&P 500 forward earnings-per-share growth. Finally, we “heat-mapped” all figures by tracking their Z-scores, or standard deviations, to create percentile ranges based on decades of historic data.

There was generally more red on our dashboard in 2023 than there was in 2022. But it’s notable that some leading economic and financial indicators seem to have bottomed out, bolstering the case that Jay Powell is pulling off a soft landing.

The NFIB small-business lobby’s optimism index and the OECD leading indicator are starting to recover, while new orders PMI held steady in 2023.

Equity investors’ dash for growth

The stock market’s gains have been narrow – a theme we have revisited several times. The biggest gains have been concentrated in a small number of tech stocks.

This chart takes another look at this theme by breaking down 2023 market performance between investment styles, as defined by MSCI. The “growth stocks” strategy – {{nofollow}}defined as equities whose earnings are expected to grow more rapidly than the rest of the market – was the clear outperformer.

(Indeed, MSCI’s breakdown of the biggest components in its World Growth Index reveals some familiar names:  Apple, Microsoft, Amazon and Nvidia.)

Momentum, dividend-yield, minimum-volatility and value strategies all underperformed our benchmark (the MSCI mid- and large-cap index).

A “clock” for Asia’s real-estate cycle

Commercial real estate’s headwinds are well known: the rise of remote work was followed by the highest interest rates in decades, constraining spreads between real estate yields ({{nofollow}}REIT dividend yields or {{nofollow}}commercial real estate cap rates) and bond yields. However, everything goes in cycles. CBRE recently said it expects {{nofollow}}CRE investment activity in Asia should recover by mid-2024, led by Singapore.

To explore this cycle, we created a “clock” tracking the new orders purchasing managers index (PMI) – the gauge of executives’ sentiment – for the real-estate industry in Asia. PMI of 50 equals neutral sentiment.

We tracked both the PMI reading for each moment in time and its rate of change, placing each month in a quadrant. “Slowdown,” for instance, reflects a positive (50-plus) sentiment reading that has come down from a month earlier. “Recovery” is negative (less than 50) sentiment that has improved from the previous month, and so on.

For each quadrant – recovery, expansion, slowdown and contraction – we then posted the average performance by S&P’s Asia-Pacific Ex-Japan REIT. Unsurprisingly, “expansion” was correlated with the best returns. The gray line follows the deep pessimism through the worst of 2020, followed by a weak expansion in 2021 and more pessimism in 2022. Switching to dark blue, the 2023 cycle was in more positive territory.

Equities shrug off Fed hiking cycles

This chart looks at the S&P 500’s price return over the last 11 Federal Reserve tightening cycles. We’ve identified the days that the central bank made its final hike, allowing us to slice 50 years of market history into different regimes.

While the lower pane presents this performance in a “normal” index manner on the Y axis, the upper pane displays the S&P 500 on a logarithmic scale. That’s useful for a better sense of long-term performance, given how lower early absolute values in the bottom pane compress the visualisation.

Over the last 10 hiking cycles (excluding the current cycle, assuming Jay Powell’s July rate increase was indeed the last), the S&P 500 has posted an advance within 12 months of the final hike. (The GFC took more than a year to really kick in after the final hike of 2006.)

China's declining population

The Chinese National Bureau of Statistics recently released annual demographic figures, showing that the nation’s population shrunk for a second straight year. Before 2022, that hadn’t happened since the 1960s.

The global decline in birth rates is a potential headwind for many economies and social-security systems, and China is seeing a particularly dramatic change. In 2016, there were nearly 19 million births; in 2023, that number dropped to just 9 million.

Watching payment-card use to gauge US consumer confidence

Visa, the payment-card giant, provides us with a Spending Momentum Index. This breaks down spending on necessities versus “discretionary spending,” i.e. non-essential expenses like restaurants, entertainment and subscriptions.

If the ratio of discretionary to non-discretionary spending is above 1, it indicates that Americans are relatively confident about their economic situation. When the ratio falls below 1, consumers are cutting back, using their cards for basic needs, i.e. “non-discretionary” goods and services.

The effect of Covid-19 in our chart is obvious: spending on perceived luxuries ground to a halt in 2020. Pent-up pandemic demand for discretionary items was released in a surge during 2021.

As we assess prospects for a soft landing, the ratio is shrinking towards 1 again, suggesting that consumers are tightening their belts.

A century in stocks

What counts as a “typical” year for the S&P 500? Luckily, we have 96 years of data to help us find answers.

In this chart, we bracket annual returns into 10-percentage-point ranges. Many of the outliers came during the Great Depression: punishing declines in 1930, 1931, and 1937 were intertwined with massive bear-market rallies in 1933 and 1935.

Conventional wisdom suggests that equities outperform in the long run, and that argument is bolstered by the plurality of years in the 10-20 percent and 20-30 percent gain brackets.

We also colour-coded each year, starting with 2024 as the darkest blue and implementing a gradual fade as we go back in time, to give a sense of how recent years compare to the historic distribution. The last 20 years are more or less in the centre of our chart, with the 2008 bear market the only outlier.

Market sentiment is decidedly greedy

{{nofollow}}CNN Business developed a Fear & Greed Index to evaluate investor sentiment and analyse the influence of emotion on markets. We recreated it here using data from S&P, the CBOE and the Fed.

This chart offers a historical perspective on five out of the seven Fear & Greed indicators: stock price momentum (as defined by the S&P 500 versus its 125-day moving average), the five-day ratio of put to call options, market volatility (the VIX), junk bond demand (the spread over investment grade), and safe haven demand (as measured by short-term bond outperformance versus stocks).

We generate Z-scores (divergence from the norm, as measured by standard deviations) for each indicator in this chart.

After some positive inflation numbers recently and dovish statements from the Fed, the market has been “greedy” since November.

US budget deficits: higher for longer

This chart displays the International Monetary Fund’s projection of national budget deficits as a percentage of GDP. Sustained deficits are the order of the day, which is concerning given the era of ultra-low interest rates has ended. With the late 2020s in sight, governments are facing the challenges of aging populations, declining tax bases and the hangover from pandemic stimulus spending.

The Germans are on track for the smallest deficits; the French, Italians and Japanese – known for their high overall debt burdens – are projected to make progress closing their budget gaps.

The US and China stand out both for their very wide deficits and how little progress is expected.

The US can traditionally run such large deficits more easily than other countries due to the dollar’s status as the international reserve currency and global demand for ultra-liquid Treasuries. Still, Standard Chartered boss Bill Winters warned this week that {{nofollow}}a “buyer’s strike” for US debt is still possible without some fiscal retrenchment.

“There is very little sign of fiscal discipline from either party right now,” the US-born banker said in Davos.

As for China, despite its recent economic challenges, the nation is expected to post much faster GDP growth than the US, making its deficit more bearable.

Trouble in the skies at Boeing

Boeing is back in the news. On Jan. 5, {{nofollow}} a months-old Alaska Airlines 737 Max 9 jet suffered a mid-air door blowout.

Macrobond’s fundamental corporate data includes time series on Boeing’s backlog and deliveries. This chart tracks the plane maker’s orders over the last 15 years showing the profound effect of previous safety concerns.

As we can see, the two deadly 737 Max crashes in 2018-19 sent demand tumbling well before the pandemic crushed the travel industry.

Aircraft orders had been on the rise for Boeing, recently exceeding the previous peak in 2018.

Japanese consumers take stock of inflation

‍The Bank of Japan holds its next monetary policy meeting on Jan. 23. It has been seeking sustained inflation, driven by a positive wage-price spiral, before it ends the world’s last negative interest rate policy (NIRP) – as is widely expected this year.

To explore the inflation outlook in Japan, Macrobond offers high-frequency data from Macromill– which surveys consumers weekly for their price expectations in two to three months’ time.

Our chart tracks a weighted average for this price perception (the blue line, as measured on the left-hand axis) and breaks down the percentage of respondents expecting higher or lower inflation.

The earliest survey data for 2024 shows a continuation of the somewhat disinflationary trend that began in August. {{nofollow}}That could be fodder for a continued cautious stance by the BOJ.

Still, three-quarters of Japanese consumers expect inflation – compared with less than half at the start of 2021.

Chinese producer inflation and its link to shipping rates

Spiking shipping rates are in focus amid {{nofollow}}attacks on container vessels in the Red Sea.

This visualisation tracks the Shanghai Export Containerized Freight Index (SCFI), which tracks ocean freight rates for importing goods from China. We’ve pushed SCFI forward by 21 weeks to show its leading-indicator relationship with Chinese producer price inflation.

Should PPI continue to follow this relationship and spike higher, it would be at odds with the {{nofollow}}deflationary trend in China and would also have implications for the global disinflationary narrative, given the global importance of Chinese trade.

Half a decade of stagnation in Peru

Peru was viewed as one of Latin America’s more successful economies over the past 30 years; average per capita economic growth was 4.5 percent from 2002 to 2016.

But {{nofollow}}political turmoil and lingering aftershocks from the pandemic have hit the economy hard of late. Market expectations suggest the {{nofollow}}recent run of stagnation won’t solve itself soon.

This chart tracks a monthly macroeconomic survey from the nation’s central bank, which tracks expectations over the next 3 months. The survey has expressed a pessimistic outlook (<50) for almost three years.

The sluggish 2020s extend a multi-decade plateau in global growth

We’ve entered the fifth year of the 2020s, so it’s not too early to start thinking about decade-on-decade economic comparisons. 

This chart uses data from the World Bank and International Monetary Fund to compile global GDP growth rates from 1960. The coloured stripes represent the mean growth rate for each decade. 

Even as the post-Covid snapback led to the quickest growth since the 1970s, the lingering damage from the pandemic makes the 2020s the weakest decade on our chart.

Interestingly, the 1990s, a golden era for the American economy, were only slightly better than the 2020s on a global basis. This could reflect the depth of the contraction in post-Soviet and other post-Communist states. China, meanwhile, had already started to grow quickly, but from a much lower share of global wealth than it has today.‍

Turkey’s inflation problem spreads across the economy

Disinflation might be taking hold in much of the world, but not in Turkey. 

 The central bank has spent half a year unwinding the unconventional interest-rate policies formerly espoused by President Erdogan, but inflation has only become worse – ending 2023 {{nofollow}}at a whopping 65.7 percent. Meanwhile, the currency is sliding to more record lows.

This inflation heat map shows all sectors in various shades of red for December, indicating that they are exceeding their 12-month average. Education, hospitality and transport experienced some of the most significant inflationary pressures. Last month, housing became the last relatively “cool” category to go.  ‍

It's a historically uncommon moment for the Fed to end rate hikes

Unemployment versus inflation is the classic central-banking tradeoff. Therefore, it’s historically unusual, though not unknown, for the Federal Reserve to stop tightening policy when inflation remains higher than the unemployment rate.

The moments in time on this scatterplot represent the final rate hikes in Fed cycles going back to 1957. Data points below the dotted line show moments when unemployment exceeded the inflation rate at the time.

Just four cycles are on the other side of the line – all in the inflationary 1969-81 era bookended by Paul Volcker’s crushing interest-rate hikes.

Today, we are again north of the dotted line, but just barely. US unemployment stands at 3.7 percent, while inflation, as defined by the change in the year-on-year core consumer price index, is 4 percent. Jerome Powell is hoping to land a disinflationary soft landing; {{nofollow}}his critics charge that he risks repeating the mistakes of the 1970s by halting rate increases (as the market assumes he has) before inflation has truly been crushed.

Short, sharp recessions vs. long depressions, before and after WWII

The National Bureau of Economic Research is viewed as having the official word on whether the US is in recession. The NBER also has data on business cycles going back to the Civil War, allowing us to examine very long-term trends.

As the red strips in this chart show, long-lasting recessions were quite frequent – indeed, almost more of a norm than economic growth – before World War II. The Great Depression was not unique; the {{nofollow}}“Long Depression” of the 1870s, known for gradual, post-bubble deflation rather than the misery of the 1930s, is clearly visible.

Since the late 1930s, the pattern has changed completely; expansion is the norm, interrupted by recessions that seldom last more than a year. Economists often attribute this to the {{nofollow}}abandonment of the gold standard, allowing policymakers much more leeway to stimulate the economy (and create inflation).

President Biden falls behind Trump’s approval-rating trend – again

This chart tracks the progress of {{nofollow}}approval ratings for Presidents Trump and Biden as compiled by FiveThirtyEight, the website founded by pollster Nate Silver.

Donald Trump is notable for his quick descent into unpopularity, followed by a slow rebound from the second year of his presidency as the economy kept growing. Still, his approval rating never truly approached 50 percent.

Joe Biden took office with considerably more enthusiasm from the electorate, only to see his rating deflate as the pandemic wound down and inflation kicked in. He has fallen below Trump’s approval rating at the same point in his presidential term several times.

With the current president not far off his lowest approval rating, {{nofollow}}the Democratic Party remains concerned that his predecessor might also be elected as his successor later this year.

Two weeks into 2024, markets expect a smaller “pivot” in Europe

This chart visualises the progression of futures-market expectations for action by the Federal Reserve, European Central Bank and Bank of England this year.

It’s notable how the gap between perceptions of the different central banks closed over the course of 2023. Last summer, markets were betting on a sharp Fed pivot but tighter policy for longer in the UK and Europe. Fed and ECB expectations converged in September, and then moved in unison back towards a more severe pivot.

By the end of 2023, the markets were expecting the same outcome for all three central banks: six rate cuts. However, as of Jan. 12, expectations had been trimmed to “only” about five cuts for the ECB and BoE.

Expectations for the Fed were following suit after unexpectedly strong {{nofollow}}US nonfarm payrolls, but futures markets were back to predicting six cuts at the time of our publication.

Earnings forecasts by sector are diverging the most in decades

It would seem obvious that the pandemic was a boon to some industries and inflicted serious damage on others. This chart provides evidence for that assertion by tracking how analysts’ earnings estimates for different sectors have diverged.

This chart uses historic data on developed-market earnings-per-share estimates from FactSet to calculate this dispersion, i.e. cross-sector standard deviations.

The coloured lines track the median dispersion in different “eras” over the past 30 years: Alan Greenspan’s “irrational exuberance” 1990s, the post 9/11-post-dot-com 2000s, and the years that followed the global financial crisis.

Variability between sectors has been dramatically higher since 2020.