Corporate Compass
Navigating the year ahead | January 2025
Corporate Advisory | Corporate Finance Advisory
STRICTLY PRIVATE AND CONFIDENTIAL
North American Edition
CONFIDENTIAL
Key themes for 2025
⚫ The pace of geopolitical, economic and technological change is accelerating
⚫ Increasing swings in global political control and populist policy agendas create the potential for
economic volatility just as an AI “industrial revolution” helps underpin growth
⚫ The U.S. appears well-positioned amid this uncertainty
⚫ GDP growth estimates have been revised upward post-election and the economy remains strong
⚫ Markets trade near all-time-highs with small- and mid-cap firms set to help broaden the rally
⚫ De-regulation, interest rate cuts, and potential tax cuts may buoy markets further
⚫ M&A activity and the sponsor monetization pipeline for 2025 is expected to be strong given
valuations, economic growth, and interest rate dynamics
⚫ Though risks exist, 2025 is a year to take action
⚫ Rate volatility, geopolitical tensions, and evolving consumer profiles should be key watch items
⚫ Softness in the Chinese economy, supply chain disruption from tariffs, and potential mass
deportations present further risks, but in recent cycles, markets have remained resilient despite
these factors
⚫ 2025 appears strong compared to longer-term uncertainty and risk
1
CONFIDENTIAL
2024 was the “Year of the Election,” with the world voting for change
100
50%
8 of 10
federal elections held
(executive and/or legislative)1
of global population held
elections2
most populous nations voted
MORE PEOPLE LIVED IN COUNTRIES HOLDING
ELECTIONS THAN AT ANY POINT IN RECORDED HISTORY
Number of people living in countries that held
elections (bn)
4.2bn
KEY OUTCOMES4
⚫ The United States returned former President Donald Trump to the White
House and gave Republicans majorities in the House and Senate
4
⚫ UK Conservatives’ 14-year reign ended in largest UK landslide since 1906
3
⚫ Indian PM Narenda Modi was re-elected, but his party – the Bharatiya
Janata Party (BJP) – lost their outright majority
⚫ French President Emmanuel Macron’s legislative coalition was
2
significantly hobbled in a snap election; 2 Prime Ministers resigned
⚫ Japan’s Liberal Democratic Party (LDP) lost its parliamentary majority for
1
0
1900
1st time since 2009
⚫ African National Congress (ANC) – the party of Nelson Mandela – lost its
1950
2000
2024
parliamentary majority for the 1st time in post-Apartheid South Africa
Among democracies that held elections in 2024, over 80% saw the incumbent party lose seats or vote
share from the last election3
⚫ Voters consistently chose disruption – and companies should anticipate challenges to the status quo
Why it
matters?
⚫ International relations, global trade and domestic economic policies are uncertain, as parties new to power will look
to tackle high-profile voter issues first
⚫ Expect to see similar outcomes in key 2025 elections (e.g., Germany, Canada, Australia, Chile)
Sources: 1 Various; Includes European Parliament elections held in all 27 EU member countries; 2 2024: The Super Election Year, Statista; 3 Elections in 2024, The
Economist; 4 Democrats aren’t alone – incumbent parties have lost elections all around the world, ABC News
2
CONFIDENTIAL
The U.S. election impact can be seen in evolving economic forecasts
2025
U.S. INFLATION EXPECTATIONS – CPI
U.S. GDP GROWTH
2.25%
2.60%
IMPLIED FED FUNDS RATES1
IMPLIED EUR / USD FX RATE
1.15
4.00%
2.10%
2026
3.90%
1.14
2.50%
2.05%
2.00%
2.50%
1.13
3.80%
2.50%
1.85%
2.00%
1.90%
2.40%
3.60%
3.66%
1.10
2.30%
1.65%
2.30%
1.45%
2.20%
3.40% 3.30%
3.20%
2.20%
1.25%
Pre-election
3.10%
2.10%
Current
Why: Tax cuts and
deregulation contributing
to higher 2025E GDP
growth
1.08
1.05
1.05
3.00%
Pre-election
Current
Why: Potential tariffs and
mass deportation polices
may cause inflationary
pressure above Fed’s 2%
target
Pre-election
Current
Why: More hawkish Fed
to control inflation; fixed
income investors may
react negatively to
potentially higher deficits
Pre-election
Current
Why: U.S. tariff impacts
on GDP growth and
interest rates outside
the U.S. may drive a
stronger dollar
U.S. election results have seen GDP growth, inflation, interest rate, and dollar strength forecasts revised
upwards amid risks and opportunities
Why it
matters?
⚫ Actions may matter more than words: while the perception of a drastic shift in U.S. economic and trade policy is driving
new outlooks post-election, historical precedent suggests that results will be guided by implementation – not rhetoric
⚫ Firms should prepare for higher borrowing costs and a stronger dollar, potentially offset by lower risk premia and spreads
Source: FactSet as of 12/31/2024; Pre-election estimates as of 11/1/2024, current estimates as of 12/31/2024; 1 2025E reflects implied rate at 12/10/2025 Fed meeting,
2026E reflects implied rate at 12/09/2026 Fed meeting
3
CONFIDENTIAL
Issuers are exposed to U.S. policy decisions through borrowing costs
RISK FREE RATE AS A % OF TOTAL INVESTMENT GRADE AND HIGH-YIELD COST OVER TIME1
2
10-yr UST / All-in IG Cost
IG average: 67%
3
10-yr UST / All-in HY Cost
100%
HY average: 40%
IG max: 86%
Current: 83%
80%
HY max: 66%
60%
Current: 59%
40%
20%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
U.S. DEBT-TO-GDP OVER TIME4
2024 RATE AND SPREAD DISPERSION (BPS)6
Delta between peak and floor
160%
Current 5 : 120%
108 bps
2.4x
120%
45 bps
80%
40%
0%
1966
1974
1982
1990
1998
2006
2014
2022
Floor
Peak
10-yr U.S. Treasury
IG spreads
3.62%
4.70%
88 bps
133 bps
Interest rate risk management strategies will be increasingly important in 2025 given Treasuries as a
percentage of all-in yields are at the highest level in 15 years
⚫ Treasuries saw almost ~2.5x the dispersion vs. IG spreads in 2024 , demonstrating borrowers are now more exposed to
volatile underlying rates
Why it
matters?
⚫ Economic factors (Trump tax cuts, elevated U.S. debt levels, and potential for a U.S. ratings downgrade) could translate to
increased volatility in the risk-free-rate and overall borrowing costs even as spreads remain tight
⚫ Issuers should be proactive and opportunistic to take advantage of optimal conditions
Source: FactSet and Morgan Markets as of 12/31/2024; 1 Calculated as U.S. 10-year Treasury divided by all-in cost of borrowing; 2 IG cost of borrowing using JP Morgan
JULI; 3 HY cost of borrowing using JP Morgan High Yield index; 4 Federal Reserve Bank of St. Louis; 5 Current as of 7/1/2024; 6 IG spread using JP Morgan JULI Index
4
CONFIDENTIAL
U.S. equity markets have typically rewarded single party control – at least
initially
1990-2024 S&P 500 ANNUAL RETURNS
“Trifecta” governments: single party control of the
White House, Senate and House of Representatives
First year Trifectas and
key geopolitical and economic factors
⚫1993 | Bill Clinton: Post-Cold War growth,
23.5%
free trade (North American Free Trade
Agreement), Clinton-Gore Deficit Reduction
Plan
⚫2003 | George W. Bush: Post 9/11 national
security, economic stimulus
S&P 500 median annual returns
12.8%
⚫2009 | Barack Obama: Post-2008 recovery,
healthcare (American Recovery and
Reinvestment Act, Affordable Care Act)
⚫2017 | Donald Trump: Tax cuts (Tax Cuts and
Jobs Act)
(1.5%)
First-year Trifecta median
Second-year Trifecta median
⚫2021 | Joe Biden: COVID economic recovery,
industrial policy (Inflation Reduction Act,
CHIPS Act, Infrastructure Act)
S&P 500 returns in the first year of Trifecta governments have been more than 80% higher than the
long-term average
Why it
matters?
⚫ The halo of a Trifecta government tends to fade in the second year relative to average S&P 500 returns, and firms should
take advantage of the potential strong economic and market positioning in 2025
⚫ U.S. companies and economic conditions are also at the strongest levels at the onset of a rate cut cycle in recent history
Sources: FactSet as of 12/31/2024, FRED
5
CONFIDENTIAL
U.S. investors ascribe higher value to growth vs. European peers
MEDIAN NTM P/E BY REVENUE GROWTH1
INDEX LEVEL NTM P/E OVER TIME
S&P 500
30.0x
S&P 500 (n = 396)
STOXX 600
U.S. vs.
STOXX
2x difference
STOXX 600 (n = 451)
3-4x difference
S&P 500 median NTM P/E: 18.3x
STOXX 600 median NTM P/E: 14.7x
25.0x
5x difference
26.0x
~25%
21.6x U.S.
21.1x
19.9x
20.0x
P/E
18.1x
16.6x
15.6x
14.3x
12.5x
15.0x
12.1x
10.7x
13.1x Europe
10.0x
5.0x
2019
2020
2021
2022
2023
2024
≤ 2%
2% - 4%
4% - 6%
6% - 8%
> 8%
Revenue Growth
The median large-cap U.S. firm trades at a ~25% premium to the median European firm
⚫ Given relative valuations, capital, investor interest, and new company formation likely to continue to be biased towards the
Why it
matters?
U.S.
⚫ Company re-listings into the U.S. likely to continue given the above factors
⚫ Firms may seek to carve-out their U.S. operations to better align M&A / equity compensation currency, and regulatory
requirements
Source: FactSet; 1 S&P 500 and STOXX 600 constituents excluding Financials and Real Estate as of Dec 31, 2024, Growth defined as 2-yr revenue forecast CAGR
6
CONFIDENTIAL
The AI “industrial revolution” underpins U.S. growth expectations
AI HAS GROWN EXPONENTIALLY SINCE 2022
MAG 7 CASH FLOW GENERATION AND INVESTMENT SPENDING ($BN)
Adj OCF (includes R&D)
R&D
Capex
Training Compute Of Notable Machine Learning Models By Domain, 2012–23
100bn
Language
Vision
Multimodal
Gemini Ultra
GPT-4
Computational power dedicated to AI model training
(petaFLOP - log scale)
10bn
PaLM (540B)
Claude 2
Llama 2-70B
Megatron-Turing
NLG 530B
1bn
$917
GPT-3 175B (davinci)
$745
70x in
<3 years
100mm
$1,087
$614
$577
$575
$500
10mm
RoBERTa Large
$383
1mm
$403
$287
$312
BERT-Large
100k
$242
$172
$167
$211
$236
$147
10k
Transformer
$165
1000
0
2011
$288
$258
AlexNet
2012
2014
2015
2016
2018
2019
2021
2022
2023
2025
Excess FCF
2021
2022
2023
2024E
$265
$232
$342
$417
$0
2025E
$511
Publication date
AI compute of machine learning models has increased
70x within 3 years of wide adoption and recent model
(GPT-3 to GPT-4) releases
Mag 7 is expected to spend almost $600bn on
investments in 2025 while generating $500bn+ in excess
cash flow
⚫ AI-boom driven growth has increased both market valuation and investment
Why it
matters?
⚫ The Mag 7 still generates significant free cash flow even after investment spending given their scale and diversification,
suggesting limited impact from an economic downturn or significantly higher rates
⚫ 20% of the current S&P 500 market value has been created from Mag 7 market cap growth since beginning of gen-AI boom1
Source: FactSet as of 12/31/2024, Stanford University Artificial Intelligence Index Report 2024; IPSOS AI Monitor 2024; Magnificent 7 includes Apple, Microsoft, Alphabet
(Google parent), Amazon, Nvidia, Meta and Tesla; 1 YE 2022 marked beginning of Gen-AI boom
7
CONFIDENTIAL
The outlook for U.S. power demand has changed significantly
GLOBAL INVESTMENT IN CLEAN ENERGY AND FOSSIL FUELS ($BN) 1
U.S. POWER DEMAND OVER TIME
Historical
Forecast
2
Fossil fuels
Clean energy
Total
6,000
5,500
1960-80: 5-6% CAGR
Transmission build-out
1980-2000: 2-3%
CAGR
CCGT build-out
5,000
Two decades of near
zero load growth
+1,000TWh
in 7 yrs.
$2,741
+400TWh in
23 yrs.
4,500
$2,354
$2,383
$2,145
+1,500TWh
in 20 yrs.
4,000
$2,004
3,500
3,000
$3,120
9% CAGR
$1,208
$1,706
$1,212
$1,249
+1,400TWh
in 20 yrs.
2,500
2,000
$1,146
$1,171
$896
1,500
$1,035
$1,116
1,000
500
Clean Energy /
Fossil fuels
2016
2018
2020
2022
2024E
1.1x
1.0x
1.4x
1.6x
1.8x
Energy investment growth will likely need to increase beyond the recent 9% annual rate to meet both
increased demand and decarbonization goals
⚫ Power demand is expected to increase substantially driven by data centers for AI, industrialization, and electrification
for transportation and heating
Why it
matters?
⚫ Further significant increases in low carbon energy generation – and conventional energy generation - will be required
to meet growing demand
⚫ Investment of this scale may require creative capital solutions (e.g., minority equity structures) to meet size, cost and
credit rating objectives
Source: IEA, WoodMac, FERC, Research & Consultant Reports, “World Energy Investment, 2024”; 1 Clean energy includes low-emissions fuels, nuclear & other clean power, energy efficiency and
end-use, grids & storage, renewable power; Other clean power = fossil fuel power with CCUS, hydrogen, ammonia, and large-scale heat pumps; Low-emissions fuels = modern bioenergy, lowemissions H2 based fuels, and CCUS associated with fossil fuels and includes direct air capture; 2 Reflects McKinsey Forecast and 3 different brokers
8
CONFIDENTIAL
Even in the absence of lower rates, less regulation tees up small cap
outperformance
EFFECTIVE NET INTEREST EXPENSE OVER TIME – S&P 15001
8%
Largest companies
Median
Smallest companies
1.60% decrease in Fed
Funds implies potential
~7% accretion to earnings2
6.9%
7%
TOTAL RETURNS SINCE H2 2024
6.1%
6%
S&P 400 (Mid-caps)
S&P 600 (Small-caps)
25.0%
Pre-U.S.
election rally
20.0%
Fed expects
fewer rate cuts
in 2025
15.0%
4.9%
5%
S&P 500 (Large-caps)
4.3%
4%
10.4%
10.0%
3.9%
8.4%
8.1%
3.7%
5.0%
3%
Historical
observations
Q4
'21
Q2
'22
Q4
'22
Q2
'23
Q4
'23
Q2
'24
Q4
'24
Q2
'25
Q4
'25
Q2
'26
Q4
'26
Change from Q4 2021 – Change per 1% change Implied change through
Q3 2024
in Fed Funds
YE 20263
Fed Funds
+4.8%
--
(1.6%)
Smallest
+2.4%
~0.5%
(0.8%)
Median
+0.9%
~0.3%
(0.6%)
Largest
+0.4%
~0.1%
(0.1%)
0.0%
(5.0%)
(10.0%)
1-Jul
1-Aug
1-Sep
1-Oct
1-Nov
1-Dec
Small cap have performed ~30% higher than large caps in 2H 2024, and have already benefitted from
recent rate cuts
Why it
matters?
⚫ Smaller firms with shorter term and floating rate exposure stand to benefit the most from lower rates
⚫ Lower interest rates should provide tailwinds to valuations, with higher growth firms receiving the most benefit
⚫ De-regulation can have outsized benefits on smaller firms given cost structures and increase in sell-side opportunities
Source: FactSet as of 12/31/2024; Note: 1 Reflects index constituents as of 12/31 for each respective year; excludes Financials; calculated as quarterly interest expense net of quarterly income earned from interest annualized,
divided by net debt, excludes companies with no debt or a negative net debt balance; largest firms represents top decile of companies by market cap and smallest firms represent bottom decile of companies by market cap each
year; largest and smallest companies defined as firms in top and bottom 10% of S&P 1500 by market cap as of Q3 2024; 2 Based on median market cap ($712mm), debt / cap ratio (42%), NTM P/E (14.3), and 21% corporate tax
rate for smallest companies as defined (excluding Real Estate and Financials); 3 Based on change in Effective Federal Funds Rate from Q4 2024 to YE 2026 based on Overnight Futures Markets as of 12/31/2024
9
CONFIDENTIAL
De-regulation likely to be a tailwind across sectors
Loosen 2023 antitrust
merger guidelines,
greenlighting more
mergers and doing it
faster
Antitrust
M&A scrutiny
Financial Services
Basel Endgame
Cryptocurrency
Energy
LNG export permitting
Choose not to endorse
Basel III Endgame
(“B3E”) or propose
replacements
Lift the Biden
Administration pause
on LNG export permits
and approve pending
permits, setting the
stage for streamlined
reviews
BASEL III ENDGAME INCREASES LARGE BANKS’ CAPITAL REQUIREMENTS IF FULLY IMPLEMENTED
~$156bn
$1,050
$1,002
U.S. G-SIB CET1 Capital Reserve ($bn)
WHAT CAN CONGRESS AND THE
ADMINISTRATION DO?
$900
in minimum
regulatory capital
unlocked if B3E not
fully implemented
$846
x
$750
$133
$133bn excess
regulatory
capital reported
in 3Q24 –
potentially
driven by B3E
7x assumed capital
to lending ratio
$600
=
=
$450
~$1Tn+
additional credit
supply
$300
$150
$0
Estimated capital required under B3E guidelines
Minimum CET1 capital
Banks' reported capital (3Q24)
Excess regulatory capital
Avoiding full implementation of Basel III Endgame regulations could illustratively increase the supply of
credit by $1Tn+1
Why it
matters?
⚫ Opportunities for deregulation span antitrust, financial services, permitting, and countless others
⚫ The market may be primed for strategic action with the potential for an improved regulatory backdrop
Source: 3Q2024 earnings presentations from Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and
Wells Fargo. Existing capital ratios as stated in Federal Reserve 2024 bank capital requirements. Estimated capital under B3E guidelines assumes +9% RWA requirement
stated in 9/24 Michael Barr speech and includes 50bps buffer. 1Assumes 7:1 capital to lending ratio.
10
CONFIDENTIAL
What can economic and market factors tell us about M&A in 2025?
REGRESSION BEST-FIT ANALYSIS: EQUITY VALUATIONS +
TREASURY RATES + ECONOMIC GROWTH1,2,3,4
KEY INSIGHTS
1.0x in S&P 500 average P/E multiple implies 6.1% deal volume uplift
2025 implied M&A range
+
Regression-implied deal value ($bn)
$4,000
2021
50bps increase in real GDP growth rate implies ~4.9% deal volume
uplift
$3,500
+
50bps decrease 10-year Treasury rate implies ~5.9% deal volume
uplift
$3,000
$2,500
2017
2024 2019
2015
2023
2014 2018
2020
2016
2022
$2,000
2012
$1,500
$2.2trn - $2.5trn 2025E3,4
regression-implied North America M&A volume
up 8-23% vs. 2024
2010
2011
$1,000
$1,000
2013
$1,500 $2,000 $2,500 $3,000 $3,500 $4,000
North America announced M&A deal value ($bn)
Overall CEO confidence was up 7% following the
election – potentially indicating increased willingness
to consider strategic M&A
S&P 500 valuations, expected U.S. economic growth, and interest rates imply an 8-23% increase in U.S.
M&A in 2025, before accounting for de-regulation tailwinds3
⚫ Be proactive: Identify potential acquisition targets and evaluate merits of a combination to have “first mover advantage”
Why it
matters?
⚫ Engage advisors and evaluate financing strategies in advance of approaching targets
⚫ Be prepared for potential inbound approaches
Source: Factset; FRED, Dealogic; 1 Regression R-Squared of 88%; Regression equation: Deal value ($bn) = 49.4 + (124.1 x Average P/E multiple) + (20,103.3 x Real
GDP growth rate) + (-24,131.0 x 10-year treasury rate); 2 Based on JPM estimates of current P/E multiple, 2025E GDP, and implied 10-year Treasury rate at the end of
the year; 3 Range based on with and without 10-year Treasury, relative to 2024 annualized M&A deal value; 4 North America based on any involvement (target, acquiror or
11
CONFIDENTIAL
Sponsor monetizations are due for a rebound
ANNUAL PRIVATE EQUITY EXIT VALUE AS
A % OF AUM1,2
Exit value as a % of AUM
AUM ($tn)
2011-2022 average: 25%
2023-2024 average: 8%
40%
PRIVATE EQUITY EXITS BY DEAL VALUE
OVER TIME ($BN)3
ANNUAL PRIVATE EQUITY AUM 1
Sponsor to strategic
Sponsor to sponsor
IPO
$4.5
$4.2
$4.0
35%
4%
$3.5
12%
$3.0
19%
30%
21%
25%
$2.5
20%
$2.0
15%
$1.5
69%
10%
75%
$1.0
8.0%
5%
$0.5
0%
$0.0
'11
'13
'15
'17
'19
'21
'23
'11
'13
'15
'17
'19
'21
'23
Historical distribution
'11 - '24
Historical distribution
'22 - '24
The pipeline of sponsor monetizations is at the highest level in 10+ years
Why it
matters?
⚫ 2021 & 2022 were outliers in private equity exit activity; 2023 & 2024 (expected) figures are at or below pre-COVID levels
⚫ Momentum for SMID caps may support more attractive valuation opportunities and more sponsor exit velocity
Source: Dealogic, Prequin; Note: includes partial and full exits, bankruptcies excluded; IPO value represents offer amount, not the market value of the company; 1 AUM
includes buyout strategy only; 2 Annual exit value divided by beginning of year AUM; 3 2024 exit figures annualized
12
CONFIDENTIAL
Markets remain resilient despite increasing geopolitical risk
S&P 500 VS. ACTIVE CONFLICTS
S&P 500 Index
State-based conflicts
1
70
6,000
60
5,000
50
4,000
40
3,000
30
2,000
20
1,000
10
0
1946
0
1957
1968
1979
1990
2001
2012
2023
Number of conflicts
S&P 500
7,000
KEY COMMODITY PRODUCTION CONCENTRATION
Rare Earth Metals
1
Production
(2023)
69%
China
Advanced Semi 2
Foundry Capacity
(2024)
66%
Taiwan
Uranium Mining
Production 3
(2022)
Oil Production
(2023)
Wheat Production
(2023-24)
43%
Kazakhstan
4
22%
United States
5
17%
0%
China
20%
40%
60%
80%
100%
The number of active conflicts is at the highest level since World War II, and concentration in critical
commodities and semiconductor manufacturing present risks
Why it
matters?
⚫ Equity market performance has historically discounted the escalation of geopolitical conflicts over the long-term
⚫ Globalization has allowed for the diversification of key economic inputs and supports the rationale for “ignoring” localized
conflicts; does the increasing trend of deglobalization risk reversing this phenomenon?
Source: UCDP/PRIO Armed Conflict dataset; FactSet data as of 12/31/2024; 1 Assumes 2024 number of state-based conflicts remains unchanged from 2023 data; 2 U.S.
Geological Survey; 3 TrendForce; 4 World Nuclear Association; 5 U.S. Energy Information Administration; 6 U.S. Department of Agriculture
13
CONFIDENTIAL
China faces risks both at home and on the world stage
CHINA’S GROWING PAINS
32%
DEBT-TO-GDP4
Excludes off-balance sheet investment vehicles of local governments
(liabilities), FX reserves, and external financial assets
Decline in domestic
equity valuations
(CSI 300) since 2021
peak
120%
84%
U.S.
47%
Increase in youth
unemployment from
11% in 20191
China
NUMBER OF LEADERS IN POWER SINCE PRESIDENT XI WAS ELECTED IN 2013
China
1
Current term expires at the end of 2027 and subject to no term limits
Italy
6%
5%
Decline in housing
prices YoY2
Decline in exports into
the U.S. since 20163
(Trump’s first term)
7
U.K.
6
U.S.
3
Japan
3
Canada
2
France
2
Germany
2
Potential leadership changes on the horizon amid upcoming elections
China’s national Debt-to-GDP is almost 1/3 lower than the U.S, and is on track for ~15+ years with the
same leadership uniquely positioning it to manage through challenges
⚫ Since President Trump’s first term, Chinese exports to the U.S. have declined by over $24bn
⚫ In addition to trade friction, China faces domestic economic issues: troubled real estate market, high youth
Why it
matters?
unemployment, declining foreign direct investments and pressure on domestic capital markets
⚫ However, China has dry powder and political unity to provide domestic economic stimuli, trade retaliation, or even
potential trade concessions (e.g., FDI into the U.S. to avoid tariffs) – thought others, like the U.S., will remain wary of
the distinction between “stimulus” and “manipulation”
Source: J.P. Morgan, U.S. Census Bureau, Federal Reserve Bank of St. Louis, International Monetary Fund, National Bureau of Statistics of China; 1 Based on year-end
2023 FRED data; 2 China House Price Index, as of November 2024; 3 2024 based on November YTD exports annualized, decline of $24bn since 2016; 4 U.S. debt-to-GDP
as of Jul 2024, China debt-to-GDP as of YE 2023
14
CONFIDENTIAL
The U.S. consumer is taking more risk
STOCK OWNERSHIP AMONG
AMERICAN FAMILIES
CRYPTOCURRENCY OWNERSHIP RATES
AMONG U.S. ADULTS
Percent of American families that
own stock
60%
% American adults that
own cryptocurrency
45%
U.S. GAMING COMPANY REPORTED
ONLINE BETTING USERS1
mm
Unique customers in the
prior twelve months
10
58%
1
Total
credit card
2024 Q3 $1.17T
balances in the U.S.
$1.15T
9.3
40%
9
$1.10T
40%
55%
CREDIT CARD DEBT HITS ANOTHER
RECORD HIGH2
8
$1.05T
35%
33%
7
50%
$1.00T
6
30%
30%
45%
5
$950bn
25%
4
$850bn
40%
3
20%
$800bn
15%
35%
$820bn
2
15%
$750bn
1
0.8
32%
30%
0
10%
'89 '93 '97 '01 '05 '09 '13 '17 '21
'21
'22
'23
'24
'17
'19
'21
'23
'18
’19
’20
’21
’22
’23
’24
Consumers appear more willing to make financial bets than they have been in the last 30 years
Why it
matters?
⚫ Retail owners are a larger share of the investor population, which may change risk tolerance and investing behaviors
⚫ Savings rates are also near long-term lows
⚫ A shift in consumer behavior may amplify the impacts of the next economic downturn
Source: 2022 Survey of Consumer Finances (Federal Reserve), 2024 Cryptocurrency Adoption and Sentiment Report (Security.org); 1 Includes U.S. users of major online
betting platform; 2 Shaded area indicates recession, Data as of Nov. 13, 2024
15
CONFIDENTIAL
The downside risk of disappointing investors has increased
INCREASING POPULARITY OF
PASSIVE AND RETAIL INVESTING2
1 WEEK GICS ADJUSTED MARKET REACTION TO Q3 EARNINGS BEATS AND MISSES (%)1
Median
90th %tile
Historical med.
0.7%
8.0%
7.4%
8.0%
2000
Current
0.7%
10.0%
8.1%
10.8%
9.0%
8.1%
7.8%
7.8%
Passive
Active
11%
10.0%
8.6%
6.4%
89%
1.1%
1.0%
0.7%
2014
2015
% Beat
77%
% Miss
22%
1.7%
0.4%
0.7%
1.0%
0.5%
0.1%
2016
2017
2018
2019
2020
2021
75%
78%
78%
83%
79%
83%
25%
20%
21%
17%
21%
17%
2014
2015
2016
2017
2018
2019
2020
(1.9%)
(2.4%)
(1.7%)
(0.8%)
(0.4%)
(1.4%)
(9.8%)
(10.2%)
(3.1%)
0.5%
0.7%
2022
2023
2024
82%
75%
83%
78%
17%
24%
17%
22%
2021
2022
2023
2024
(1.6%)
(2.6%)
(2.8%)
2024
41%
59%
(3.1%)
(5.8%)
(7.9%)
(9.9%)
(8.5%)
(10.3%)
(11.7%)
(12.9%)
Median
90th %tile
Historical med.
(1.8%)
(10.0%)
Current
(3.1%)
(13.3%)
(13.3%)
(16.9%)
Additionally, the proportion of U.S.
families owning stock has almost
doubled in the past 3 decades3
Negative reactions to earnings misses are now almost 2x the 10-year average
Why it
matters?
⚫ The shift from active to passive investments over the last few decades risk putting the marginal investor in a position of
greater price influence
⚫ Higher retail stock ownership and lower holding periods may further increase volatility
Source: FactSet as of Dec 2024; 1 S&P 500 as of Q3 of each year; market reaction as of A-1 to A+5adjusted by price performance of GICS sector over same time period;
2 Per Morningstar as of Dec 7, 2024; 3 Increase from 32% in 1989 to 58% in 2021 per 2022 Survey of Consumer Finances (Federal Reserve)
16
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