Wilmington Trust's "2024 Capital Markets Forecast" Discusses U.S. Economic Advantages Despite Potential Market Risks

Report highlights the U.S. economy's adaptability and resilience in navigating persistent challenges

WILMINGTON, Del., Dec. 13, 2023 /PRNewswire/ -- Wilmington Trust today released its 2024 Capital Markets Forecast (CMF) – "US Economic Exceptionalism: Can the reign continue?" – which highlights the current state of the U.S. economy and the factors contributing to its ability to adapt, but warns that a number of potential risks exist, which could impact the country's economic growth.

The CMF tells a story about the U.S. economic qualities, driven by:

• Economic Exceptionalism – A prosperous U.S. economy due to factors such as diminishing economic scarring, labor flexibility, and the role of AI in driving productivity and innovation.
• Equity Market Superiority – The nation's dominant ability to create technological advancements, adaptability in its overall labor market, and history of achieving greater profitability could continue to serve investors in large U.S. companies.
• Risks and Opportunities – Historic levels of stimulus and significant repricing of U.S. equity valuations will be critical to assess and monitor.

"The U.S. economy's continued ability to deliver growth and withstand disinflation has demonstrated to be a compelling force for attracting capital toward U.S. large-cap equities," said Tony Roth, Wilmington Trust's Chief Investment Officer. "However, the overall narrative remains incomplete without acknowledging challenges to the long-term sustainability of this equity outperformance, including chronic deficit spending, total debt surpassing annual GDP, and the current interest-rate environment."

"The power of technological investment, notably with artificial intelligence (AI), forward looking policy frameworks, and a flexible labor market, will propel significant productivity gains and pave the way for a renewed era of U.S. equity leadership," noted Roth.

Drivers of Exceptionalism 

For decades, the United States has been an economic leader -- displaying more consistent growth than other developed countries. There are three broad components to consider as forces that have shaped this:

1. Growth Pillars: Infrastructure, capital markets, demographics, education, and labor flexibility are critical pillars to shaping economic excellence. Robust higher education, a flexible labor market and pioneering AI development have contributed to the US's dominance here. In the coming year these structural advantages are projected to drive economic performance.
2. Policy Framework: Fiscal responsiveness of economies is also a key driver of relative performance, and the U.S. has showcased strengths targeted toward income and consumption. However, increased government debt poses challenges to long-term growth.
3. Innovative Capacity: Innovation is a crucial component of economic productivity as economies with robust digital infrastructure and significant investments in research and development are well-positioned. The growing significance of AI will shape the economic landscape, and the U.S. has demonstrated to be early adopters for these tools, which could continue to drive growth and productivity in 2024.

Equity Market Superiority

U.S. equities have continued to demonstrate remarkable performance by attracting investor capital and expanding global market capitalization. The drivers of this growth can be attributed to three economic characteristics, which all relate directly to U.S. resilience:

1. Valuation Expansion: The largest source of U.S. equity outperformance is justified by factors including its dominant position in innovation and swift policy response in the aftermath of the last two recessions. A potential "Goldilocks" scenario – characterized by slower but sustained growth and continued disinflation that allows the Fed to ease policy – could lead to a valuation rebound for sectors left behind in 2023, potentially benefiting large-cap investors.
2. Profitability: At the core of U.S. equity outperformance also lies a steady commitment to profitability, shaped by favorable fiscal and monetary policies, flexible labor markets, and strategic tax advantages for corporations. The U.S. maintains a commanding global position in innovation and is strategically positioned to maintain its advantage in technology development and adoption, which may continue to create positive economic tailwinds.  
3. Currency and Liquidity: The interplay of currency strength and liquidity dynamics plays a pivotal role in U.S. equity outperformance. The dollar has continued to appreciate against a trade-weighted basket of currencies, which has provided a notable advantage to U.S. equities for dollar-based investors. Liquidity has not only supported U.S. equity returns but has also contributed to a climate of moderate inflation.  

However, the extent of dominance might see some moderation or fluctuation over a longer timeframe than one year.

Risks and Opportunities

While key growth pillars largely remain sound and are likely to continue powering the U.S. economy in the coming years, there are also varying economic risks -- particularly around growing debt and impaired ability to respond to future shocks. Concurrently, demographic shifts pose challenges to debt sustainability and labor force growth.

Market risks also provide some vulnerabilities for the U.S. market. Valuations and interest rates – while currently viewed as manageable -- have the ability to dislodge the U.S. from the top ranks of global economies. Despite this, U.S. equities have a structural advantage and diversification may be looked upon as a tested strategy.

The potential for a U.S. economic recession has been reduced, but not eliminated. In the case of a recession, Wilmington Trust notes that the U.S. economy has the foundational elements to bounce back more quickly than other countries facing their own sets of economic challenges.

To read the report in full, visit https://www.wilmingtontrust.com/cmf-2024

ABOUT WILMINGTON TRUST 
Wilmington Trust's Wealth Management offers a wide array of personal trust, planning, fiduciary, asset management, private banking, and family office services designed to help high-net-worth individuals and families grow, preserve, and transfer wealth. Wilmington Trust focuses on serving families with whom it can build long-term relationships, many of which span multiple generations.

Wilmington Trust also provides Corporate and Institutional Services for clients internationally.

Wilmington Trust has clients in all 50 states and numerous countries, with offices throughout the United States and internationally in London, Dublin, Paris, and Frankfurt. For more information, visit www.wilmingtontrust.com.

Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), Wilmington Trust Asset Management, LLC (WTAM), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation's international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank. Member FDIC. 

Wilmington Trust Investment Advisors, Inc., a subsidiary of M&T Bank, is an SEC-registered investment adviser providing investment management services to Wilmington Trust and M&T affiliates and clients. Wilmington Funds are entities separate and apart from Wilmington Trust and M&T Bank. Registration with the SEC does not imply a certain level of skill or training. Additional Information about WTIA is also available on the SEC's website at adviserinfo.sec.gov.

Wilmington Trust Investment Advisors, Inc's Capital Markets Forecast is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the investor's objectives, financial situation, and particular needs. The investments or investment strategies discussed herein may not be suitable for every investor. The material is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional should be sought.

The forecasts presented herein constitute the informed judgments and opinions of Wilmington Trust about likely future capital market performance and are subject to change without notice. Forecasts are subject to a number of assumptions regarding future returns, volatility, and the interrelationship (correlation) of asset classes. Assumptions may vary by asset class. Actual events or results may differ from underlying estimates or assumptions, which are subject to various risks and uncertainties.

Wilmington Trust is not authorized to and does not provide legal or tax advice. Our advice and recommendations provided to you is illustrative only and subject to the opinions and advice of your own attorney, tax advisor or other professional advisor. 

Some investment products may be available only to certain "qualified investors"—that is, investors who meet certain income and/or investable asset thresholds. Any offer will be made only in connection with the delivery of the appropriate offering documents, which are available to prequalified persons upon request.

Reference to the company names mentioned in this material are merely for explaining the market view and should not be construed as investment advice or investment recommendations of those companies. No assurance can be given as to actual future market results or the results of Wilmington Trust's investment products and strategies. 

The estimates contained in this presentation constitute Wilmington Trust's judgment as of the date of these materials and are subject to change without notice. The information in this presentation has been obtained or derived from sources believed to be reliable, but no representation is made as to its accuracy or completeness. No assurance can be given as to actual future market results or the results of Wilmington Trust's investment products and strategies.

Investment products are not insured by the FDIC or any other governmental agency, are not deposits of or other obligations of or guaranteed by Wilmington Trust, M&T, or any other bank or entity, and are subject to risks, including a possible loss of the principal amount invested.

Investing involves risk and you may incur a profit or a loss. Past performance cannot guarantee future results. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful.

Third-party trademarks and brands are the property of their respective owners. Third parties referenced herein are independent companies and are not affiliated with M&T Bank or Wilmington Trust. Listing them does not suggest a recommendation or endorsement by Wilmington Trust.

Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services. Private Bankers are M&T Bank employees. Loans, retail and business deposits, and other personal and business banking services and products are offered by M&T Bank, Equal Housing Lender Bank NMLS #381076 ©2022 M&T Bank. Member FDIC.

Investments: • Are NOT FDIC Insured • Have NO Bank Guarantee • May Lose Value  

©2023 M&T Bank and its affiliates and subsidiaries. All rights reserved.

SOURCE Wilmington Trust