What to watch | 28 November 2024

Boosting real GDP growth to 3%, reducing the budget deficit to -3% of GDP and increasing oil production by 3mn barrels/day look like quite the plan. While the first objective seems easiest to achieve, the pledged tighter immigration policy and the fiscal consolidation needed to achieve the second one (1% of GDP per year) turns the first one to less than +2.5%. Meanwhile, already record-high oil production coupled with the industry’s significant challenges in increasing production (depletion of easily accessible resources, high capital costs, labor shortages, low investment profitability) gives little chance for this target to boost growth. Indeed, regulatory changes should offer some relief, but that should rather translate into substantial growth in LNG production (around 130mn tons per year by 2029, the equivalent of 2.8mn barrels of oil per day) rather than oil. For markets, achieving the 3-3-3 plan could mean a stronger dollar and lower rates, creating a net favorable environment for US equity (+5pps to 13% in 2025) and corporate credit spreads (-10bps spreads from current levels). But much will depend on how exactly inflation, growth and monetary policy would react to another oil production boom. .

Both S&P 500 and Stoxx 600 companies delivered earnings growth in Q3 2024 (~9% y/y) but the revenue recession continued in Europe, with a -1.7% contraction. Overall investor sentiment has improved following the reelection of Donald Trump and the Federal Reserve's second rate cut in November. Small and mid-cap companies, particularly in the US, are well-positioned to benefit from Trump’s reshoring policies, with earnings growth projected at +30-50% over the next two years. But US-centric reshoring policies under Trump and global uncertainty may challenge the recovery prospects for European companies. Looking ahead, earnings and revenue growth will be critical to sustaining market momentum, which has mostly been fueled by valuation-driven gains in 2024. For 2025, we expect both earnings and returns for US and Eurozone equity markets to rise by +7-12%.