Analogously to Smolyansky 2023, “The End of an Era”, suggesting significantly lower profit growth and stock returns in the future amid rising interest rates, we ran an extended (end of 2023) analysis on DJI Index constituents confirming the multi decade long downward trend in cost of debt to be one of the major drivers of historic equity returns. As debt financing costs have hit an all-time low in 2022, with little room for this trend to continue despite a deceleration in rates throughout 2024, we question whether the decades ahead might be looking different, or at least the monetary environment these companies will operate in.
Let´s recall that at constant earnings, leverage (+supportive tax system) technically drives up equity returns and vice versa, depending on the cost and supply of debt, which both have been very favourable for public- and especially private equity investors.
Without claiming a causality between the plotted series, debt – and the US´s capacity to sell its debt abroad – has been a critical source of profit growth.
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