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Spirit of the Season: Scary Charts for Investors

Spirit of the Season: Scary Charts for Investors

Key Points
  • In the spirit of the season, we share some scary charts—a few of the things we worry about late at night.

  • These bone-chilling charts include: the number of U.S. stocks cut in half, the percentage of workers supporting the population set to plunge, and disasters on the rise.

  • Unmasking these charts reveals they aren’t as menacing as they first seem.

Over the past year, we have doled out a lot of charts supporting our upbeat outlook for the global economy and stock market. A couple of our favorites in the bag of goodies are the rising trend in earnings growth supporting the rally in the stock market and the broadest global economic growth in a decade with all 45 of the largest countries growing in 2017.

We still see more treats than tricks for investors in the year ahead. But in the spirit of the season, we are sharing some scary charts—a few of the things we worry about late at night. Fortunately, just like after a good Halloween fright, we catch our breath and calm our nerves by putting them in a broader context.

The oft-cited charts of a complacently low VIX (volatility index) or the rising mountain of global debt have been seen too often by many investors to make them jump anymore. Instead of those, here we present some charts that might send shivers down your spine.

Vanishing stocks

The number of companies listed in the U.S. stock markets has been cut in half over the past 20 years, going from 8,000 to about 4,000, as you can see in the chart below. The disappearing public stock market is a frightful prospect for active managers left with fewer stocks to pick from and investors concentrating more and more of their savings into fewer and fewer stocks.

Vanishing stocks: falling number of listed U.S. companies

Number of U.S.  companies with listed stocks

Source: Charles Schwab, World Bank data as of 10/29/2017.

Fortunately, this fear can be calmed by recognizing that the increasing number of non-U.S. stocks has more than offset the shrinking U.S. stock market. While there may be 4,000 fewer listed companies in the U.S. than 20 years ago, the number of non-U.S. listed companies has risen by 10,000 over the same period to about 27,000.

Demographic demon

The percentage of workers supporting the overall population is set to plunge, as you can see in the chart below. The ratio will fall from around 65-70%, or 2 workers for every non-worker, for most countries in past decades to near 50%, or one worker for every non-worker, in the decades ahead. The drop in the ratio of producers to consumers could have scary implications for inflation and the sustainability of social programs.

Demographic demon: percentage of workers supporting the population set to plunge

working age population by country

Working age defined as those age 15 through 64.
Source: Charles Schwab, World Bank data as of 10/29/2017.

The abundant supply of workers across the major countries of the world since the 1970s (especially from China) may have helped to keep wage growth low and maintain downward pressure on inflation. A comforting thought after the alarm induced by this chart is that inflation may be kept from a destructive resurgence and social programs from becoming overburdened if productivity rebounds with more business investment in productivity-enhancing technologies, including robots and artificial intelligence.

Looming disasters

2017 is likely to rank as the most costly year ever for natural disasters. What may be even worse is the trend. Global disasters have been on the rise with mounting costs and widespread destruction, as you can see in the chart below.

Looming disasters: the impact of natural disasters is on the rise

losses for global disasters

Inflation adjusted via country-specific consumer price index and consideration for exchange rate fluctuations between local currency and US dollars. 2017 estimate includes only AccuWeather estimates of $290 billion for Hurricane Harvey and Irma and $85 billion for the California fires. Source: Charles Schwab, Insurance Information Institute as of 10/15/2017.

Providing some relief for investors wary of rising disasters, as we pointed out in our recent commentary entitled Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets, from a purely economic perspective—where analysis replaces emotion—disasters tend to spur economic growth over the short and long-term despite the widespread destruction they leave behind. In addition, stock market losses associated with past major disasters were typically short-lived.

Unmasking

These hair-raising lines and bloodcurdling bars aren’t for the squeamish. Fortunately, unmasking each of these phantoms reveals they aren’t really as menacing as they at first seem.

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Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

©2017 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

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