Stocks vs Futures - What Trends Will Dominate the Global Stock Market in the Future?

2023 turned out to be another period of growth for many assets in the global stock market: the US market benchmark, the S&P 500, grew by 24.8% (data as of December 28), the industrial Dow Jones increased by 13.7%, and the technology-focused NASDAQ rose by 44.5%. The European stock market index, STOXX Europe 600, climbed by 12.6%, Germany's DAX rose by 20%, France's CAC 40 increased by 16.5%, and the UK's FTSE 100 grew by 3.7%.

However, the Chinese markets were unable to break the downward trend and ended up in the negative for the third consecutive year: the benchmark for mainland China's exchanges, the CSI 300, lost 11.8%, and Hong Kong's Hang Seng declined by 13.8%.

The global trends of 2023 included expectations of a recession, inflation dynamics, geopolitical tensions, the pace of China's economic growth, the US Federal Reserve's interest rate, artificial intelligence (AI), and the dominance of the "Fabulous Seven" American technology companies (Apple, Amazon, Alphabet, Nvidia, Microsoft, Tesla, and Meta).

Geopolitical tensions spreading to the Middle East and the slower-than-expected pace of China's economic growth exerted significant pressure on the global capital market. Another important factor for the stock markets was the acceleration of inflation, but by the end of 2023, the pressure noticeably eased, and investors gained hope for a relaxation of the policies of key central banks in 2024.

The topic of the Federal Reserve's monetary policy dominated the global market for the majority of 2023, affecting the dynamics of returns on American stocks, bonds, and gold. The Fed began raising interest rates in the spring of 2022, starting from the range of 0-0.25% per annum. After the 11th consecutive increase in July 2023, the regulator has maintained the rate at the level of 5.25-5.5%. The expectation of rate cuts became the main driver of the market in the second half of the year when a rebound in the most rate-sensitive stocks began.

In the first half of 2023, there was a lot of discussion about the impending recession in the US economy. However, the recession passed almost unnoticed. The stocks of the "Fabulous Seven" in the US grew much stronger in 2023 than the S&P 500, averaging 114.4% (range: 49.5-240.8%) compared to 24.8%. Moreover, most of the benchmark's growth came from the IT sector.

Trends for 2024

Leading economists around the world have diverging opinions on what the next year holds for the global economy. Some analysts believe that we are heading for another crisis due to the rise in geopolitical risks. Others argue that the financial system has already developed resilience to shocks, offering hope for a soft landing. Goldman Sachs, on the other hand, looks at the situation with moderate optimism, believing that the economy will outperform forecasts in 2024, although not overwhelmingly.

2024 will be a year of elections in Taiwan (to be held in January), Europe (in June), and the US (in November). These elections will largely determine the direction of geopolitics and the fate of stock markets and economies for the next few years. Unresolved geopolitical issues will continue to influence the dynamics of stock and commodity markets, including oil and gold prices.

Another major theme in 2024 will be the real growth of the American economy. Much will depend on the US macroeconomic data for the first quarter. There may be a slowdown in the US economy due to the delayed impact of interest rate hikes in 2023.

In 2024, central banks that have raised interest rates significantly will begin to lower them, easing pressure on the financial sector and the global economy. In response to this, investor focus will shift to short-term corporate bonds and stocks of medium and small-cap companies. The topic of inflation may subside and even disappear by 2025.

The Future Outlook for the Global Stock Market

According to a forecast by Goldman Sachs, by 2050, the share of the US stock market will decrease to 35%, while the share of China and India will approach 20%.

Over the past few decades, the growth of money supply and ultra-low interest rates have contributed to the increase in asset values in all countries.

Given that the US has the deepest capital markets in the world, in 2023, it accounted for 42.5% of the global stock market capitalization, significantly surpassing the next largest economy, the European Union.

Here are the main global stock markets based on the share of global market capitalization in US dollars as of the second quarter of 2023:

USA – $46.2 trillion

EU – $12.1 trillion

China – $11.5 trillion

Japan – $5.8 trillion

Hong Kong – $4.3 trillion

United Kingdom – $3.2 trillion

Canada – $3 trillion

Australia – $1.7 trillion

Singapore – $0.6 trillion

Other developed markets – $10.2 trillion

Other emerging markets – $10.0 trillion

Total worldwide – $108.6 trillion

By the end of 2023, the market capitalization of the US stock market exceeded $46.2 trillion. Compared to other wealthy countries, US stocks have often demonstrated higher performance over the past few decades. If an investor had invested $100 in the S&P 500 in 1990, those investments would have grown to approximately $2000 in 2023, exceeding the returns observed in other developed countries by four times.

The second-largest stock market is the European Union with a 11.1% global share, followed by China with 10.6%. Over the past 20 years, China's economy has grown by approximately 12 times, reaching $19.4 trillion in 2023. China's stock markets have also experienced significant growth, aided by the inclusion of Chinese domestic stocks in the MSCI Emerging Markets Index in 2018 and the internationalization of its stock markets in 2002.

Japan accounts for 5.4% of the global market share, followed by Hong Kong at 4%.

Analysts at investment bank Goldman Sachs predict that the market capitalization of the US stock market will decline to 35% of the total global market by 2030. Meanwhile, emerging markets, including China and India, are projected to reach a combined share of 35% over the same period. It is expected that by 2050, the share of emerging countries will significantly surpass that of the US and reach 47% of global stock markets.

Projected Share of Global Stock Market by 2030:

USA: 34.7%

EU: 8.3%

China: 14.1%

India: 4.1%

Other developed markets: 21.5%

Other emerging markets: 17.4%
The first factor driving this shift is the rapid growth expected in countries with emerging market economies. Historically, as GDP per capita increases, capital markets in economies tend to become more complex.

According to the forecast in the publication, India is expected to experience the fastest growth rates in the world. By 2030, it is projected to account for 4.1% of the global stock market capitalization. Furthermore, by 2050, this share is expected to exceed that of the eurozone due to strong per capita GDP growth and demographic factors.

The second factor, albeit to a lesser extent, is the rising valuation multiples in emerging markets, driven by higher GDP per capita. Wealthier countries, as seen in the example of the United States, often trade at higher earnings multiples as they are considered to be exposed to less risk.

Consequences for Investors

What does this mean from an investment perspective? According to Goldman Sachs, despite the United States showing better performance in recent decades, it does not mean that the trend will continue. Considering the structural shifts caused by population and GDP growth, investors should consider the possibility of geographic diversification of their portfolios in the long term. It is already worth considering how to safeguard personal finances from potential economic storms in the coming year.
Long-Term Stock Investment Strategies:

Index Funds

Investing in index funds, such as the S&P 500, allows you to allocate your money into a broadly diversified portfolio of stocks. This strategy is based on the expectation of long-term index growth.

Individual Stock Selection

If you have knowledge and interest in a specific industry or company, you can choose individual stocks for investment. It is important to conduct fundamental analysis of the company and assess its long-term prospects.

Long-Term Bonds

In addition to stocks, you can consider investing in long-term bonds, which provide stable income and lower levels of risk compared to stocks.

Investing in Liquid Companies with a Good Reputation

For long-term investment, it is important to select stocks of companies that have been on the market for a long time, have stable financial indicators, and a good reputation. Such companies are less prone to market volatility and possess greater stability and reliability.

Portfolio Diversification

In long-term investing, it is important to allocate your stock portfolio across different sectors of the economy, regions, and companies. This helps to reduce risks and increase the potential returns of the portfolio. For example, in the event of a crisis in a specific industry, losses can be offset by profits in other areas.

Reinvesting Dividends

One of the key tools for long-term stock investment is reinvesting the dividends received. This allows investors to increase their positions in companies, thereby enhancing the potential profitability of their portfolio.

Regular Portfolio Updates

During the process of long-term investing, it is crucial to constantly monitor changes in the companies you have invested in. This includes keeping track of management changes, development strategies, financial indicators, and more. Regularly updating your portfolio helps avoid potential loss of profits.

Avoiding Emotional Decisions

Long-term investing requires investors to control their emotions and make decisions solely based on fundamental analysis. This entails refraining from panic selling during periods of market volatility and holding investments for the long term even in the face of price declines.

Investing in Companies with Promising Fundamental Indicators

For long-term investing, it is important to choose companies with strong fundamental indicators such as revenue growth, profits, dividends, as well as robust management and product lines.

In conclusion, long-term stock investing is an effective means of growing capital over many years. It minimizes risks, increases potential profitability, and ensures financial stability in the long run. However, it is essential to remember that long-term investing requires patience, discipline, and the ability to make decisions based on fundamental analysis rather than emotions.

Robert Williams


calendar icon 20.02.2024

Blockchain technology expert. Crypto Market Analyst. Private investor.

Read Also