Insights on the State of Global Equity Markets

 

The session kicked off with a relatable question: How many people own stocks? This served as an entry point into a discussion about the evolution of global equity markets and the impact of technology on trading, investing, and economic growth. Phil Mackintosh took the audience back to 1971 when NASDAQ was founded, highlighting how technology transformed trading from chaotic, human-driven processes on exchange floors to streamlined, data-driven electronic markets.

 

Key Takeaways:

1. Evolution of Stock Market Technology

  • 1971 and the Birth of NASDAQ: NASDAQ automated trading by consolidating the best bid and offer prices, revolutionising the way trading was conducted. By the 90s and 2000s, most exchanges had become fully electronic, reducing errors and inefficiencies.
  • Impact of Automation: Automation significantly decreased the cost between bid and offer prices (purple line), making trading cheaper for investors. As costs dropped, trading volume (liquidity) increased, and markets became more accessible through digital platforms and apps.
  • Democratisation of Trading: The shift to electronic trading has democratised access to markets, allowing more people to invest via apps, fundamentally altering the way individuals and institutions interact with the stock market.

2. The Broader Role of Stock Markets

  • From Trading to Financing Innovation: Beyond trading, stock markets play a crucial role in financing innovation. Entrepreneurs and companies list on exchanges like NASDAQ to raise capital, scale their operations, and bring new products to market. Many successful tech companies have grown with the help of public markets, becoming household names.
  • IPO Significance: Initial public offerings (IPOs) represent years of hard work by founders, employees, and investors, who finally saw the financial value of their ideas realised. The stock market, thus, is pivotal for economic stability and wealth creation.

3. Investment Returns and Economic Impact

  • Long-Term Returns on Stocks: Investing in stocks has historically provided higher returns compared to bonds or real estate, making it a key strategy for building financial security. The S&P 500's performance since 1990 illustrates the potential of equity markets to generate wealth over the long term.
  • Current Market Trends (2024): The global equity markets are experiencing positive momentum, with the S&P 500 and NASDAQ 100 outperforming other regions. Strong economic growth and decreasing interest rates have fuelled these gains. Notably, the NASDAQ 100’s success is driven by a small group of highly innovative companies, known as the "MAG7."

4. The Role of AI and Semiconductor Boom

  • AI Driving Market Gains: The MAG7 companies, deeply involved in AI, have seen significant earnings growth. They include NVIDIA, Microsoft, Google, Amazon, Meta, Tesla, and Apple, all of which are at the forefront of AI advancements.
  • Semiconductor Demand: The SOX Index, representing semiconductor companies, has outperformed even the NASDAQ 100, indicating the massive investment and demand in chip technology driven by AI development. This highlights the crucial role of semiconductors in enabling future innovations.

5. Economic Implications and Demographic Challenges

  • Innovation and Wealth Creation: A country’s economic growth is closely linked to its level of innovation. More innovative countries, as shown on a GDP and innovation chart, tend to be wealthier. Encouraging innovation is essential for boosting productivity and economic output.
  • Aging Populations and Slowing Growth: Many advanced economies are facing demographic challenges, with declining birth rates and ageing workforces. This demographic shift puts pressure on economies and makes it harder to sustain GDP growth.
  • Deficit Spending as a Temporary Solution: Governments have relied on deficit spending to maintain economic stability, but this comes at the cost of rising debt and interest payments. Addressing these challenges requires finding ways to boost productivity.

6. The Potential of AI to Transform Productivity

  • AI as a Productivity Booster: Historically, major technological advancements, such as the internet, have led to spikes in productivity. AI has the potential to be the next major driver of efficiency, helping to offset demographic declines and manage economic challenges.
  • Future Outlook: If AI can deliver on its promise, it could significantly enhance productivity, enabling economies to grow even with a shrinking workforce. Mackintosh concluded optimistically, suggesting that AI could help solve some of the most pressing economic and demographic issues, and perhaps even more.

Conclusion:

The discussion emphasised the symbiotic relationship between technology and markets. Automation has made trading more efficient and accessible, while markets have financed groundbreaking tech advancements. As we face demographic and economic challenges, AI stands out as a potential game-changer, with the power to boost productivity and drive future economic growth. The hope is that, just like previous tech revolutions, AI will usher in a new era of prosperity and innovation.

 

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Speaker:

  • Phil Mackintosh, Chief Economist, Nasdaq
 
 

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