Everyone is getting very excited about the U.S. equities again. After more than two years in the doldrums, it looks like things are finally on the up for individuals who invest in companies. In short, there’s good news on the horizon.
However, a boom in private equities is not guaranteed. While some of the signs of improvement are there, the economy remains a mixed picture and there are multiple variables to consider.
Reasons For A Boom
The following are some of the reasons we might see a boom in private equities this month (or soon after).
Strong Growth
The U.S. economy generated a somewhat ridiculous 5.2% growth in Q3 2023, despite all the problems in the economy and the fact that we are now more than two years since the post-COVID-19 bounce. The growth of the economy is encouraging companies to expand and people to take risks, suggesting the underlying productive capacity could increase substantially over the coming months.
Lower Interest Rates
There are also signs that the U.S. may lower interest rates now that inflation is falling, spurring people to move out of bonds and back into equities. What’s more, they will be seeking opportunities in the private equity markets to avoid the saturation currently dogging the public ones. Expect keen investors to scour the web to find that bargain business for sale that gives them the best possible return.
Diversification
Investors are also getting into private equity because of the enhanced diversification it offers. That alone could push up the price.
Recently, this concept of investing in small companies has become trendy. People are less confident of the returns on big blue chip investments and instead want to get back to the historical average and put their money into smaller companies that could potentially grow more.
Upbeat Investor Sentiment
Lastly, December is seeing some upbeat investor sentiment as many people begin to predict the end of hard times and a return to the boom enjoyed before the pandemic-related disruption. The rise of advanced technologies is giving investors the sense that society is still improving and that Western civilization has not yet peaked, despite all the doom and gloom.
Reasons That There Might Not Be A Boom
With that said, there are several reasons why we might not see a boom in private equities over the coming weeks.
Inflation Shocks
One reason could be an inflation shock. While the figure is still coming down, it is not clear whether it will return to baseline or even rise again. It if doesn’t fall as much as central banks want, then they may increase rates once more, pushing everyone back to buying bonds.
Regulatory Changes
We could also see investors being put off by increased regulatory scrutiny. Governments are increasingly looking into private equity markets and regulating their activities. These could make it harder for these companies to raise the funds they need to expand and turn into the 100-baggers that the people investing in them want.
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