Connect with us

Markets

5 Undeniable Long-Term Trends Shaping Society’s Future

Published

on

We’re living in a world of rapid change, where disruption is the norm and innovation is the only way to stay relevant.

The dynamic nature of society makes it difficult to decipher. However, despite the world’s complexity, there are some long-term trends that have emerged among the chaos. These help us make sense of the world today, and can give us an idea of what to expect in years ahead.

Here’s a look at five long-term trends that are set to transform society as we know it.

The following article uses charts and data from our new book Signals (hardcover, ebook) which covers the 27 macro trends transforming the global economy and markets. In some cases, where appropriate, we’ve added in the most recent projections and data.

#1: Aging World

With every successive year, our global population is skewing older.

Since 1970, our worldwide median age has grown by almost a decade. By 2100, it’s projected to increase by another 10 years.

global median age chart in the signals book

Of course, not all countries are aging at the same rate.

Using data from the UN, the graph below covers the old-age dependency ratios (OADR) of different regions, showing the proportion of working-age citizens versus the percentage of older people, who are less likely to remain in the workforce.

old age dependency ratios chart from the signals book

What’s the economic impact of an aging population? Some potential risks include rising healthcare costs, a shrinking workforce, and even economic slowdowns.

To mitigate some of these risks, it’s crucial that countries build solid pension systems to support their aging citizens. Other potential solutions include increasing the age of retirement, enforcing mandatory retirement plans, and limiting early access to benefits.

Aging populations are also influencing the make-up of households in many countries. In the U.S., the share of multigenerational family households has been rising steadily since the 1970s.

multigenerational households in the us

At a societal level, people in the oldest age groups often play a different role in society than working age people. Many seniors engage in volunteerism and play a pivotal role in childcare for their families–activities that fall outside traditional measures of economic activity.

#2: Urban Evolution

Another macro trend that’s set to transform many regions of the world is rapid urbanization.

Currently, more than half of the global population lives in urban areas, and this influx of city-dwellers is expected to grow even more in the years ahead.

urban vs rural global population

While urbanization may seem like an long-established phenomenon, it’s actually a relatively new trend, historically speaking.

Throughout human history, populations have typically lived in small villages. All the way up to the early 1800s, close to 90% of the global population still lived in rural areas. Urbanization didn’t take off on a widespread scale until the 20th century.

But once urban migration started, it snowballed, and since then it’s shown no signs of slowing down. By 2050, over two-thirds of the global population is expected to live in urban settings.

The Rise of Megacities

Even in developing countries, urban life is becoming the norm – a shift that is causing a boom in megacity growth.

urban growth in developing countries

The median population size of the world’s top 100 cities has been growing steadily too – from eight million in 2000 to a projected 12 million in 2035.

Why is this happening? People tend to migrate to urban areas for socioeconomic reasons, and these economic pull-factors are particular strong in the developing world. Over time, this migration and increase in the standard of living is lifting millions of people out of poverty. This brings us to our third trend.

If you like this post, find hundreds of charts
like this in our new book “Signals”:


Signals: Book

#3: Rising Middle Class

While poverty is far from eradicated, the global middle class is growing, and fewer people are living in extreme poverty than ever before.

rising global middle class

As the above graph shows, there was an overall increase in daily income from 1971 to 1995. By 2019, income levels had increased even further.

According to Brookings, an average of five people are entering the global middle class per second, and by 2030, the worldwide middle class population is expected to reach 5.3 billion.

global population by wealth category

As the global middle class grows, so does the market for products and services around the world. And as the middle class has more disposable income to spend, these developing markets can create new opportunities for companies and investors alike.

In fact, according to MSCI, although global equity markets are dominated by North American companies (61.5%) in terms of market capitalization, the vast majority of revenues (70.1%) come from outside North America. As the rest of the developing world gets richer, this trend is likely to accelerate.

#4: Rising Wealth inequality

People in lower-income economies aren’t the only people generating more wealth—the richer are also increasing their net worth. By a lot.

Over the last few decades, the wealth of America’s top 10% has increased by billions of dollars, while the middle and bottom wealth groups have stayed relatively stagnant.

share of total wealth by wealth group

What’s driving this wealth inequality? One key factor is the different types of assets each wealth group owns. While the top 10% invest heavily in the stock market, other wealth groups rely on real estate as their main form of investment.

assets vs historical performance

Historically, equities have had higher returns than real estate—making the rich richer and leaving the bottom 90% behind.

#5: Environmental Pressures

So far, we’ve touched on four demographic shifts that are transforming society as we know it. But these changes in our global population size, wealth, and consumption habits have had far-reaching consequences. This last trend touches on one of those consequences—increased environmental pressure.

Since the year 1850, the global average temperature of land areas has risen twice as fast as the global average.

global surface temperatures

Various factors have contributed to increasing temperatures, but one major source stems from human-produced greenhouse gas emissions.

What human activities contribute to global emissions the most? The biggest culprit is industrial activity—32% of total emissions, while energy use in buildings comes in second at 17%.

Our Warmer World

Why is this significant? Rising temperatures pose a risk to our ecosystems and livelihood by changing weather patterns and putting the global food supply at risk.

climate change and extreme weather events

The past half-decade is likely to become the warmest five-year stretch in recorded history, underscoring the rapid pace of climate change. On a global scale, even a small increase in temperature can have a big impact on climate and our ecosystems.

For example, air can hold approximately 7% more moisture for every 1ºC increase, leading to an uptick in extreme rainfall events. These events can trigger landslides, increase the rate of soil erosion, and damage crops – just one example of how climate change can cause a chain reaction.

For the billions of people who live in “drylands”, climate change is serving up a completely different scenario of increased intensity and duration of drought. This is particularly worrisome as 90% of people in these arid or semiarid regions live in developing economies that are still very reliant on agriculture.

As a society, we will need to take a hard look at the way we consume in order to begin mitigating these risks. Will we rise to the challenge?

If you like this post, find hundreds of charts
like this in our new book “Signals”:


Click for Comments

Markets

Beyond Big Names: The Case for Small- and Mid-Cap Stocks

Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?

Published

on

A line chart showing the historical return performance of small-, mid-, and large-cap stocks.

 

Published

on

The following content is sponsored by New York Life Investments
An infographic comparing low-, mid-, and large-cap stocks, including an area graph showing historical returns, a bubble chart showing how much $100 would be worth over 35 years, a horizontal bar graph showing annualized volatility, and a line graph showing relative forward price-to-earnings ratios, that together show that mid-cap stocks present a compelling investment opportunity.

Beyond Big Names: The Case for Small- and Mid-Cap Stocks

Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.

According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps.  

This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.

Higher Historical Returns

If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?

Small CapsMid CapsLarge Caps
Starting value (February 1989)$100$100$100
Ending value (February 2024)$2,162$3,276$1,764

Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.

Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.

This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.

Small caps also outperformed over this timeframe. They earned 23% more than large caps. 

Higher Volatility

However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps. 

Small CapsMid CapsLarge Caps
Total Volatility18.9%17.4%14.8%

Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.

Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.

Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.

Attractive Valuations

Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.

Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point. 

Small Caps/Large CapsMid Caps/Large Caps
Relative Forward P/E Ratios0.710.75
Discount29%25%

Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.

Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.

Discovering Small- and Mid-Cap Stocks

Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.

With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.

Visual Capitalist Logo

Explore more insights from New York Life Investments

Click for Comments

You may also like

Subscribe

Continue Reading

Subscribe

Popular