An Alternative Outlook Note for the Season

Written by: Inigo Fraser JenkinsAlla Harmsworth and Robertas Stancikas, CFA

The frequency with which the news is sampled influences the tone of the cycle. Daily or intraday headlines can be easily dominated by a somewhat dismal litany of events, while really big positive changes typically take longer to come to fruition. Sampling the news at a much lower frequency, say once a year or even less frequent, would likely result in a more positive timbre.

So what positive news could tentatively point to higher growth but also be positive for society? 

Soft Landing Likely for US Economy, Solid Earnings Growth

Perhaps the most obvious piece of good news: it seems highly likely that the US economy will achieve a soft landing in 2024, despite the fastest increase in the cost of capital in a generation. This is still likely to be a “landing,” not an endless acceleration that somehow defies slowing at all. Our indicator for US earnings growth one year ahead suggests a 9% increase in earnings per share, slower than recent growth and below current consensus forecasts, but a remarkable outcome nevertheless.

Given strong recent market returns and another wave of capital inflows, this backdrop is probably not enough to lead to strong tactical performance from risk assets. However, any weakness in equities should be seen as an opportunity to grow strategic allocations that any investor needs to preserve long-term purchasing power in a world of higher equilibrium inflation. 

Looking beyond the tactical, the bigger positive developments are not primarily in the economic sphere. One could point to many potential scientific advances; here, we pick out a few that happen to be directly relevant to the big-picture secular themes, such as demographic change and the energy transition, that seem destined to determine the investment outlook over the next 5–10 years.

Health Advances Could Blunt Demographic Headwinds

Good evidence is emerging that rates of dementia are falling in many developed economies study published in late 2020 showed that the incidence rate of dementia in Europe and North America has declined by 13% per decade over the past 25 years. Based on the study’s findings, the Financial Times estimated that if the trend persists, 15 million fewer people in high-income countries would develop dementia by 2040. 

This clearly offers enormous hope to society at large, but this note is tied to the outlook for capital markets and strategic allocation. In addition to the societal benefits, from a purely cold economic perspective it could counteract one of the largest secular headwinds to growth. The largest constraint on expected real growth rates over the next 10–20 years probably comes from the expected decline in the working-age population in the developed world and China. Absent a massive productivity increase (and forecasters have had a dismal time in predicting this), the change in the number of workers is the key determinant of growth. For the developed world, we expect the number of workers, assuming people continue to retire at 65, to decline by 4% between now and 2040. For China, the decline of nearly 10% is expected.

The US has a more favorable demographic trend; its working-age population is expected to rise by nearly 4% over the same time horizon. However, the US is not immune to other problems related to aging. As the population aged 75 and older increases, so does the need for long-term care, which impacts worker productivity in two ways. First, it diverts expenditure from research and development, infrastructure and education to healthcare and social assistance. Second, it increases the number of people needed in the care sector—an area that is especially hard to automate. So, the demographic projections imply an increasing share of the population either engaged formally in the care sector or falling informally out of the work force to care for elderly relatives.

In previous research, we have shown that the ratio of health and social care workers to the size of the US population over 75 has been relatively stable over the past 30 years. If this ratio remains constant, the aging of the population implies a sustained, significant increase in the share of the work force needed for care work. On this basis, the current 13% share would more than double by 2045, assuming that current labor-participation rates for the 15–65 years and 65–79 years cohorts stay the same as today. 

Greater need for social care could be driven disproportionately by dementia (as with other diseases like cancer and heart disease, mortality occurs relatively late). Thus, if the incidence of dementia continues to decline, it would offset a meaningful share of productivity declines from aging and a need for more care workers. 

In a similar vein, excessive weight has a high cost to society and a drag on productivity. It is associated with a higher incidence of diabetes, strokes and heart disease as well as greater risk of developing cancer. According to World Obesity Federation numbers in 2023, 14% of all people over five years old globally were obese, with another 24% overweight. According to its estimates, four billion people will likely be overweight or obese by 2035. The estimated annual cost would be $4 trillion by 2035 or 2.9% of global GDP, result of lost productivity and working hours as well as higher healthcare cost and premature deaths. 

A new class of GLP-1 agonist weight-loss drugs have produced very positive signs, with early trials showing weight loss of 10–20%. What is more, some studies suggest that this class of drugs appears to have modulating effect on addictive behavior, such as smoking and alcohol consumption. If widespread adoption of these drugs can reverse the rising obesity trend, it would not only lead to material healthcare cost savings but enable millions of people to lead healthier, longer, more productive lives. 

Battery Chemistry Advances Could Speed the Energy Transition

Breakthroughs in battery chemistry are another key development, in this case with implications for the energy transition. Current technologies rely on lithium, which poses a geopolitical problem given the geographic distribution of raw materials and refining capabilities as well as environmental concerns stemming from extraction and disposal.

Recent advances in battery chemistry suggest that the next generation of batteries may be able to use alternatives to lithium, such as sodium and potassium, which are abundant and carry lower health and environmental concerns. This would aid the world’s ability to practically achieve an energy transition, but it could also temper the transition’s inflationary, geopolitical and environmental impact. 

The Bernstein Global Energy Storage research team also notes important advances in solid state battery (SSB) technology, with advantages including faster charging and improved safety, lower cost, and energy density that is 40% higher than current battery technology. The commercialization of SSB technology is expected to begin around 2025, with mass production toward the end of decade, which should speed the energy transition and open new possibilities for application in mobility1.


Huge market tailwinds in recent decades have been highly favorable, at least from the perspective of an owner of capital. At face value, the narrative for markets over the next decade seems likely to be shaped by what happens when these tailwinds abate or even reverse, such as via deglobalization and demographic forces. It might seem odd to focus on just these very specific developments, but changes such as these are not only good from a societal point of view—they also play directly into the strategic outlook for investing, given their ability to blunt some of the mega forces that seem set to define the investment landscape. 

Zooming out from the daily news flow does indeed provide more positive pointers for the future. We wish all readers a happy holiday season and thank them for their support throughout 2023. We look forward to working more closely with you in 2024 as we collectively ponder the impact of inflation, upcoming elections and the vagaries of capital markets.

[1] For more details please see the black book by Neil Beveridge, et al., Battery Tech Roadmap 2023: Faster, Higher, Stronger, Bernstein Research, October 7, 2023.

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