Download - Conviction despite Uncertainties
Blackstone Investment Strategy
Blackstone Investment Strategy
Joseph Zidle
Chief Investment Strategist & Managing Director
Byron R. Wien
Vice Chairman
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OCTOBER 2021
Conviction despite Uncertainties
Blackstone |Blackstone Investment Strategy
INTRODUCTION BY JOSEPH ZIDLE AND BYRON WIEN
Note: As detailed in the “Disclaimers” section, the above and all subsequent commentary in this presentation reflect the personal views of Joseph Zidle, Managing Director and Byron Wien, Vice Chairman
in the Private Wealth Solutions Group, and do not necessarily reflect the view of Blackstone.
1
Conviction despite Uncertainties Recent volatility amid strong inflation growth has caused some market watchers to fear that the specter of stagflation
lurks among us. While we are concerned about the possibility of elevated inflation over the medium term, we caution against reading too much into
volatile growth numbers. Just as many of last year’s data prints qualified as the “worst ever,” so many of the numbers this year are being heralded as the
“best ever.” That can’t continue forever, nor should it be expected to. We maintain our conviction in this recovery’s durability, especially in the US,
largely due to the historic strength of the American consumer.
When Risks Seem to Multiply before Your Very Eyes To be sure, concerning issues around the world seemingly propagate by the day, and we remain
clear-eyed about several economic risks. Domestically, the US faces stubborn labor market tightness, worsening supply chain problems, and political
brinkmanship around the debt ceiling. Globally, China’s recovery has slowed, commodity prices continue to soar, and countries around the world are
printing surprisingly large inflation numbers. Each of these developments threatens the rapid, broad-based recovery that has unfolded over the past year.
For some economies, recoveries will simply be delayed, and growth will be pushed forward. For others, lost growth might not be made up. But we think
that, especially in the US, these uncertainties are more appropriately viewed as road bumps on the path to a full economic recovery, rather than
treacherous detours.
Outlooks Are Diverging Among developed markets, inflation has been higher than expected, though this is mostly attributable to transitory factors. Over
the next several years, there is likely to be global divergence. In the US, we are more convinced than consensus that inflation will stay higher for longer.
But we also think that the economy has entered a self-sustaining cycle and will achieve “escape velocity,” in stark contrast to the stagnant growth of the
post-GFC era. As a result, we expect that the Federal Reserve will achieve its dual mandate, allowing it to wind down monetary stimulus and enabling
rates to grind higher. Among emerging markets, the inflationary picture is mixed. In China, for example, consumer price growth remains relatively muted
despite significant producer price increases. But the average inflationary trend in EMs has been higher, and central banks are reacting with aggressive rate
hikes and withdrawal of liquidity. This represents a headwind for many developing economies, especially as commodity and food prices soar.
A More Challenging Operating Environment As supply chain chaos continues unabated, it’s clear that economies’ ability to import disinflation from China
has been reduced. Persistent supply bottlenecks continue to worsen; we think these are unlikely to be resolved until the end of 2022 at the earliest, with
many constraints lasting through 2023. In addition, a significant and growing number of companies cite the inability to find qualified labor as their top
concern and are raising wages as a result. Despite this, profit margins have continued to expand as many companies have successfully pushed higher input
and labor costs onto consumers. While firms will attempt to continue this pass-through, it’s clear that supply challenges are starting to take their toll, with
several big companies missing recent earnings estimates. We think that the overall operating environment will likely become more complicated over the
next 1-2 years. But it’s not all bad: businesses’ capital expenditures are increasing as firms seek to increase capacity and the efficiency of existing labor
forces.
Investment Considerations We think it is critical that investors consider the risk factors discussed above. These include the potential for elevated
inflation, higher interest rates, ongoing supply chain snags, and more challenging operating conditions. But the environment that we’ve described will also
have significant opportunities. Assets that are tied to the real economy are likely to benefit from the strong recovery that we expect. Housing markets, one
of the most significant drivers of real economic growth, should continue to perform well amid solid demand, historic undersupply, and favorable
demographic tailwinds. There will be myriad opportunities for high-conviction investors to find creative ways to tap into historically strong consumer and
business spending. The world remains full of uncertainty, and we may not have clarity on many of these risks for several quarters. But investors who
refuse to give in to short-term market agita and take a long-term view of this recovery have the potential to be rewarded accordingly.
Blackstone |
TABLE OF CONTENTS
Blackstone Investment Strategy 2
Global Recovery 3I.
Inflation 10II.
Operating Environment 17III.
Market Outlook 26IV.
Investing Mega-Trends 31V.
Blackstone |Blackstone Investment Strategy 3
I. Global Recovery
Blackstone |Blackstone Investment Strategy 4
GLOBAL GDP GROWTH
GDP growth estimates for 2021 revised down for US, up for EU; estimates for 2022 relatively stable
2021 Real GDP Growth Estimates(YoY change)
2022 Real GDP Growth Estimates(YoY change)
Source: Bloomberg consensus forecasts. “2Q estimates” as of June 30, 2021, “3Q estimates” as of September 23, 2021.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
US EU China World
3Q estimate 2Q estimate
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
US EU China World
3Q estimate 2Q estimate
Blackstone |Blackstone Investment Strategy
0%
20%
40%
60%
80%
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21
Brazil China EU India Japan UK US World
5
VACCINATIONS
The world has made significant progress in vaccinations, more than doubling from ~20% in 2Q21 to 44% today
Share of Total Population Having Received at Least One COVID-19 Vaccine Dose
Source: Our World in Data, as of September 23, 2021.
Blackstone |Blackstone Investment Strategy
HOUSEHOLDS STILL IN GOOD SHAPE
Our conviction in the strength of the US recovery is based on the historic strength of the US consumer
Debt Service Payments(1)
(percentage of disposable personal income, seasonally adjusted)
Net Worth Growth Rates(YoY change)
Source: Blackstone Investment Strategy, Federal Reserve Board, and Haver Analytics, as of March 31, 2021. Data available on a one-quarter lag.
(1) “Mortgage Debt Service” represents total quarterly required mortgage payments divided by total quarterly disposable personal income. “Consumer Debt Service” represents total quarterly scheduled
consumer debt payments divided by total quarterly disposable personal income.
6
Record-high household net worth growth rate and absolute level
-20%
-10%
0%
10%
20%
30%
1991 1996 2001 2006 2011 2016 2021
Nonfinancial Corporate Businesses Households
3.5%
4.5%
5.5%
6.5%
7.5%
1981 1991 2001 2011 2021
Mortgage Debt Service Consumer Debt Service
Blackstone |Blackstone Investment Strategy
EUROPE GROWTH
Eurozone GDP estimated to return to pre-COVID levels by 4Q’21, but remain below pre-COVID growth path
Eurozone GDP Growth Paths(indexed to 100 as of 12/31/19)
Source: Eurostat, Haver Analytics and Goldman Sachs Global Investment Research. GDP data are non-seasonally adjusted, as of June 30, 2021. GDP data beyond June 30, 2021 represent Goldman Sachs
forecasts, as of September 14, 2021. “Pre-COVID Trend” represents the average growth for the Eurozone from 2015 through 2019.
7
85
90
95
100
105
110
2019 2020 2021 2022 2023
Actual Estimated Pre-COVID Trend
Blackstone |Blackstone Investment Strategy 8
CHINA’S CONCERNING SLOWDOWN
China’s rapid economic growth has begun to slow, with regulatory and Evergrande concerns rattling markets
Chinese Nominal Retail Sales(1)
(CN¥ in trillions, seasonally adjusted)
¥1.0
¥1.5
¥2.0
¥2.5
¥3.0
¥3.5
¥4.0
2011 2013 2015 2017 2019 2021
High Yield Corporate Debt Indices(2)
(yield-to-worst)
0%
5%
10%
15%
20%
25%
2011 2013 2015 2017 2019 2021
China Global
(1) Source: Blackstone Investment Strategy, China National Bureau of Statistics, and Haver Analytics, as of August 31, 2021.
(2) Source: Blackstone Investment Strategy, ICE Bank of America, and Bloomberg, as of September 22, 2021.
Risky Chinese bonds
at their highest yield
since March 2020
Blackstone |Blackstone Investment Strategy 9
II. Inflation
Blackstone |Blackstone Investment Strategy
-2%
0%
2%
4%
6%
2019 2020 2021 2022
US Euro area Japan UK Canada
US AN OUTLIER WHEN IT COMES TO INFLATION
US leads major developed economies in inflation growth; estimated to converge towards the end of 2022
Consumer Price Index Comparison(YoY change)
Source: National sources, Haver Analytics, and Bloomberg. Actual data as of July 31, 2021 for all countries (U.S. data as of August 31, 2021.) All data beyond these dates represent consensus economic
forecasts.
10
Forecasts
Blackstone |Blackstone Investment Strategy
Source: Blackstone Investment Strategy and Bureau of Economic Analysis, as of July 31, 2021. “PCE” is Personal Consumption Expenditures.
(1) Dotted lines represent the hypothetical path of the PCE inflation index if the index’s average annualized monthly percentage change over the stated period (i.e., over 1 year, 2 years, or 5 years) had
equaled 2%.
INFLATION METRICS
Fed argues that prices have not been high for long, but average inflation over the last 5 years is now above 2%
11
PCE Inflation Growth(1)
(YoY change)
PCE Inflation Index and Look-Back Periods(2)
(indexed to 100 as of 2012, seasonally adjusted)
102
104
106
108
110
112
114
116
2016 2017 2018 2019 2020 2021
PCE Inflation Index 1 Year 2 Year 5 Year
Inflation is now higher than
it would be had it averaged 2%
over the past 1, 2, and 5 years
0%
1%
2%
3%
4%
5%
2011 2013 2015 2017 2019 2021
Fed’s 2% inflation target
Blackstone |Blackstone Investment Strategy
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
2008 2010 2012 2014 2016 2018 2020 2022
Treasury Securities Mortgage-Backed Securities
(1) Source: Blackstone Investment Strategy and Federal Reserve Board, as of September 22, 2021. Shaded area represents potential evolution of the Fed’s asset holdings once tapering begins, and
assumes a linear, proportional reduction in purchases of Treasury and mortgage-backed securities, to take effect at each scheduled FOMC meeting and to be completed by the June 2022 meeting.
(2) Source: Blackstone Investment Strategy and Bloomberg, as of September 23, 2021. TIPS are Treasury Inflation-Protected Securities.
12
FED TAPERING & REAL YIELDS
Fed’s balance sheet will still grow once tapering begins, but yields will likely begin to rise due to lower demand
Federal Reserve Assets Held Outright(1)
(US$ in trillions, Wednesday level)
Periods with Negative 10-Year US TIPS Yields(2)
The Fed will likely announce
tapering in November: will leave
the balance sheet at ~$8.5 trillion
May 22, 2013:Fed Chair Bernanke
first references taperingin Congressional testimony
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
8007006005004003002001000
Trading Days Since Yields Turned Negative
Post-Financial Crisis COVID Crisis
Blackstone |Blackstone Investment Strategy 13
MARKET EXPECTATIONS OF FED POLICY
Market’s expected timeline for Fed rate hikes has accelerated significantly after high inflation prints
Market Expectations of Fed Funds Rate(1)
(as of month-end)
Number of Fed Rate Hikes Priced In By Each Scheduled FOMC Meeting(2)
(1) Source: Blackstone Investment Strategy and Bloomberg, as of August 31, 2021. Market expectations are represented by the interest rates implied by prices on monthly fed funds futures contracts, as
of month-end for each month shown.
(2) Source: Bloomberg, as of September 23, 2021. Based on interest rates implied by prices on monthly fed funds futures contracts.
0.00%
0.25%
0.50%
0.75%
1.00%
1.25%
2021 2022 2023 2024 2025 2026
December 2020 March 2021 August 2021
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Nov.'21
Dec.'21
Jan.'22
Mar.'22
May'22
June'22
July'22
Sept.'22
Nov.'22
Dec.'22
Feb.'23
After Fed tapering ends in mid-2022,
markets expect rate liftoff in 6 months
Blackstone |Blackstone Investment Strategy
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Jan-20 Jul-20 Jan-21 Jul-21
Non-energy Goods Energy Food and Drink Services
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2011 2013 2015 2017 2019 2021
5Y5Y Forward Inflation-Linked Securities
Inflation Expectations 5 Years Foward
INFLATION LESS CONCERNING IN EUROPE
Inflation expectations remain below ECB’s 2% target, with most inflation in volatile / transitory categories
Long-Term Inflation Expectations(1) Eurozone Inflation (HICP) by Component(2)
(YoY change)
(1) ECB and Bloomberg. “5Y5Y Forward Inflation-Linked Securities” represents the 5-year, 5-year EUR inflation swap rate and is a common measure to look at the market’s future inflation expectations,
and is daily as of September 14, 2021. “Inflation Expectations 5 Years Forward” represents the European Central Bank’s Survey of Professional Forecasters estimate for the average growth in the
HICP measure of inflation over the next 5 years, and is quarterly, with the most recent survey as of July 23, 2021.
(2) Eurostat and Haver Analytics. Contribution data as of July 31, 2021. Inflation contribution is derived by weighting each component’s change by its relative weighting in the overall HICP basket.
14
Market expectations have
rebounded off pre-COVID
lows but remain below
historical average
ECB’s 2% target
Vast majority of latest inflation
prints came from categories that
are volatile (food/energy) or
transitory (non-energy goods)
Blackstone |Blackstone Investment Strategy 15
MONETARY POLICY
Emerging market central banks are raising policy rates to combat rapid growth in inflation
Emerging Market Inflation and Policy Rates(average of selected emerging markets)(1)
Source: Haver Analytics, as of July 31, 2021 (CPI) and September 30, 2021 (policy rates).
(1) Represents the average of 52 emerging markets’ CPI growth and a subset of 40 emerging markets’ policy rates, for which monthly policy rate data are available.
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CPI Growth (3-month average) Policy Rate
Blackstone |Blackstone Investment Strategy
III. Operating Environment
16
Blackstone |Blackstone Investment Strategy
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2001 2005 2009 2013 2017 2021
LABOR MARKET TIGHTNESS CONTINUES
Firms continue to report unprecedented difficulty finding workers as job openings remain at record highs
Job Openings per Unemployed Person(1)
(seasonally adjusted)
Small Business “Jobs Hard to Fill” Index(2)
(diffusion index, seasonally adjusted)
0
10
20
30
40
50
1991 1996 2001 2006 2011 2016 2021
(1) Source: Blackstone Investment Strategy and US Bureau of Labor Statistics, as of July 31, 2021.
(2) Source: National Federation of Independent Business (NFIB), as of August 31, 2021. Based on a survey of 800 small companies that are members of NFIB.
17
Job Openings > Unemployed Persons
Job Openings < Unemployed Persons
Blackstone |Blackstone Investment Strategy
GLOBAL SHIPPING PRESSURES
Global shipping traffic continues to worsen, as firms compete for limited freight space on container ships
Anchored Container Ships Waiting to Offload at Los Angeles and Long Beach(1)
18
New Orders of Container Ship Capacity(2)
(millions of twenty-foot units)
(1) Source: Marine Exchange of Southern California, Vessel Traffic Service of Los Angeles and Long Beach, and Bloomberg, as of September 16, 2021.
(2) Source: Drewry Maritime Research and Bloomberg, as of September 15, 2021.
0 1 2 3 4
2021 YTD
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
0
10
20
30
40
50
60
70
Dec-20 Mar-21 Jun-21 Sep-21
Record new orders for
container ship capacity
Blackstone |Blackstone Investment Strategy
CAPITAL EXPENDITURES
Companies are solving for labor market tightness and supply chain constraints by investing for productivity
Real Gross Private Domestic Investment(indexed to 100 as of 1 quarter preceding recession start)
Source: Blackstone Investment Strategy and US Bureau of Economic Analysis, as of June 30, 2021. “Global Financial Crisis” is indexed to 100 as of September 30, 2007; “COVID-19 Crisis” is indexed to 100
as of December 31, 2019. Data are seasonally adjusted annual rate.
19
Returned to Pre-Recession Levels in 21 Quarters
Recovered to Pre-Recession Levels in 3 Quarters
60
70
80
90
100
110
(8) (6) (4) (2) 0 2 4 6 8 10 12 14 16 18 20 22 24
Global Financial Crisis COVID-19 Crisis
Blackstone |Blackstone Investment Strategy
CORPORATE TAILWINDS AND PROFIT MARGINS
Impact of Four Corporate Tailwinds on S&P 500 Profit Margins(1)
20
Four Corporate Tailwinds: History and Expected Future Contribution(2)
Reversal of four secular corporate tailwinds could weigh on profit margin expansion over the longer term
0%
3%
6%
9%
12%
1991 1996 2001 2006 2011 2016 2021
Actual Profit Margins Modeled Profit Margins
(1) Source: Bureau of Economic Analysis, Federal Reserve, Bloomberg, Haver Analytics, and Blackstone Investment Strategy, as of June 30, 2021. Data available on a quarterly frequency. “Corporate
Tailwinds” are defined as labor compensation as a share of GDP, imports of goods and services as a share of GDP, implied interest rates on corporate debt (nonfinancial corporate net interest divided
by business debt), and the US statutory corporate income tax rate. “Modeled Profit Margins” represents the linear decomposition of quarterly S&P 500 profit margins on these tailwinds.
(2) Source: Haver Analytics, World Bank, University of California at Davis, and Moody’s, as of December 31, 2020.
Profit Margin Driver
Change from
1970 to 2020
Future
Contribution to
Margins
US Corporate Tax RateDecreased from
48% to 21%
Globalization
(Trade, % of Global GDP)
Increased from
18% to 44% /
Labor Share of Output
(Compensation, % of US GDP)
Decreased from
58% to 53%
Interest Rates
(AAA-rated IG Bond Yield)
Decreased from
8% to 2%
(peaked at 16%
in 1981)
Blackstone |Blackstone Investment Strategy 21
IV. Market Outlook
Blackstone |Blackstone Investment Strategy
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21
22
INVESTOR SENTIMENT
Market sentiment at optimistic extreme in recent months
Source: Ned Davis Research, as of September 21, 2021.
(1) Totals may not sum due to rounding.
(2) Arrows represent extremes in optimism and pessimism. They do not represent buy and sell signals and can only be known for certain (and added to the chart) in hindsight.
(3) Sentiment must reverse by 10 percentage points to signal an extreme, in addition to reaching the above extreme levels.
Extremes generated when sentiment reading:(3)
▪ Rises above 61.5 = Extreme Optimism
▪ Declines below 55.5 = Extreme Pessimism
Historical average value of Crowd Sentiment
Poll at:(2)
▪ Optimistic extremes (down arrows) = 68.7
▪ Pessimistic extremes (up arrows) = 46.8
▪ Average spread between extremes = 21.9
S&P 500 Composite Index
NDR Crowd Sentiment Poll
NDR Crowd Sentiment Poll is: % Gain / Annum % of Time
Above 66.0 0.1 28
57.0 – 66.0 from Above 1.9 18
57.0 – 66.0 from Below 22.3 19
Below 57.0 11.1 35
Buy / Hold = 8.1% Gain / Annum
S&P 500 Index Performance(1)
Full History: 12/1/1995 – 8/31/2021
71.1
53.4
72.1
37.9
74.9
30
55
80
Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21
Blackstone |Blackstone Investment Strategy 23
DIVIDEND DISCOUNT MODEL
Dividend discount model shows implied S&P 500 price levels at various levels of earnings and risk-free rates
S&P 500 Dividend Discount Model(1)
Source: Blackstone Investment Strategy, as of September 30, 2021.
(1) Assumes starting S&P 500 Earnings Per Share (EPS) of $140.55, and that EPS start the period increasing / decreasing to level indicated in first column, before increasing / decreasing linearly over 2
years to a 4% nominal growth rate and remaining there in perpetuity. Further assumes dividend payout ratio remains at prior year’s level of 41.94% and equity risk premium is a constant 4.15%.
1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50%
$220 8,024 6,591 5,592 4,856 4,292 3,845 3,482 3,182 2,929 2,714 2,528
$222 8,097 6,651 5,643 4,901 4,331 3,880 3,514 3,211 2,956 2,739 2,551
$224 8,170 6,711 5,694 4,945 4,370 3,915 3,545 3,240 2,983 2,763 2,574
$226 8,243 6,771 5,745 4,989 4,409 3,950 3,577 3,269 3,009 2,788 2,597
$228 8,316 6,831 5,796 5,033 4,448 3,985 3,609 3,298 3,036 2,813 2,620
$230 8,388 6,891 5,847 5,077 4,487 4,019 3,640 3,326 3,062 2,837 2,643
$232 8,461 6,950 5,897 5,121 4,526 4,054 3,672 3,355 3,089 2,862 2,666
$234 8,534 7,010 5,948 5,166 4,565 4,089 3,704 3,384 3,116 2,887 2,689
$236 8,607 7,070 5,999 5,210 4,604 4,124 3,735 3,413 3,142 2,911 2,712
$238 8,680 7,130 6,050 5,254 4,643 4,159 3,767 3,442 3,169 2,936 2,735
$240 8,753 7,190 6,101 5,298 4,682 4,194 3,799 3,471 3,196 2,961 2,758
$242 8,826 7,250 6,152 5,342 4,721 4,229 3,830 3,500 3,222 2,985 2,781
$244 8,899 7,310 6,202 5,386 4,760 4,264 3,862 3,529 3,249 3,010 2,804
$246 8,972 7,370 6,253 5,430 4,799 4,299 3,894 3,558 3,275 3,035 2,827
$248 9,045 7,430 6,304 5,475 4,838 4,334 3,925 3,587 3,302 3,059 2,850
$250 9,118 7,490 6,355 5,519 4,877 4,369 3,957 3,616 3,329 3,084 2,873
Tra
ilin
g T
welv
e-M
onth
EPS
10-Year Treasury Yield
Blackstone |Blackstone Investment Strategy
RISING RATES THREATEN PUBLIC CREDIT MARKETS
Record net retail flows into intermediate- and long-term bond funds highlight duration risk should rates rise
Net Flows into Intermediate- and Long-Term Bond Funds (Mutual Funds + ETFs)(1)
(US$ in billions, rolling 12-month sum)
Hypothetical Total Return Loss To Traditional Fixed Income(2)
(Bloomberg Barclays US Agg Bond Index)
24
0.4%
-3.6%
-8.6%
10Y +10 bps 10Y +50 bps 10Y +100 bps($200)
($100)
$0
$100
$200
$300
$400
$500
2005 2007 2009 2011 2013 2015 2017 2019 2021
(1) ICI, Morningstar Direct and Blackstone Investment Strategy, as of August 31, 2021. “Traditional Fixed Income” represents net flows into the following US mutual fund and ETF categories: Corporate
Bond, Intermediate Core Bond, Intermediate Core-Plus Bond, Intermediate Government, Long Government and Long-Term Bond.
(2) Blackstone Investment Strategy, as of September 16, 2021. Projections based on a linear model that decomposes the price of the Bloomberg Barclays US Aggregate Bond Index on the index’s average
duration of underlying securities and on the 10-year Treasury yield’s level and 30-day percentage change, based on daily data from January 3, 1989 to March 25, 2021.
Blackstone |Blackstone Investment Strategy
27.1
22.4
15.3
5
10
15
20
25
30
Trailing P/E Ratio Forward P/E Ratio Forward EV/EBITDA
90th-10th Percentile Range Current
EQUITY VALUATION
25
Source: Blackstone Investment Strategy and Bloomberg, as of August 31, 2021.
(1) Forward data are Bloomberg estimates. Percentiles are calculated using monthly observations beginning in January 1990. “Trailing P/E Ratio” is the trailing 12-month price-to-earnings ratio.
“Forward P/E Ratio” is the estimated price-to-earnings ratio over the next 4 quarters. “EV” is enterprise value per share. “Forward EV/EBITDA” data series begins in August 2005.
(2) “Rolling 5-Year 90th-10th Percentile” represents the region between the historical 90th and 10th percentiles of the green line, calculated over the previous 60 months’ observations.
S&P 500 Historical Valuations(1)
(January 1990 – August 2021)
Equity market valuations remain highly elevated relative to historical levels
10
15
20
25
30
35
1991 1996 2001 2006 2011 2016 2021
Rolling 5-Year 90th-10th Percentile
S&P 500 Trailing 12-Month P/E Ratio
S&P 500 Trailing 12-Month P/E Ratio(2)
Blackstone |Blackstone Investment Strategy
-4%
0%
4%
8%
12%
16%
20%
5x 10x 15x 20x 25x 30x
P/E Ratio
0%
2%
4%
6%
8%
10%
12%
14%
16%
1 2 3 4 5
Historical Quintiles of the S&P 500's P/E Ratio
S&P 500 VALUATION AND RETURNS
Average S&P 500 Forward 10-Year CAGR by Valuation Quintile
26
S&P 500 Valuation and Forward 10-Year CAGR(1)
Record-high valuation multiples imply potential public equity underperformance over the coming cycle
The index’s current P/E
ratio lies in the highest 20%
of historical observations
Current P/E Ratio: 27.1
Implied Forward 10-Year CAGR: 2.6%
Forward 10-Year CAGR
Source: Blackstone Investment Strategy, Bloomberg, and Standard & Poor’s, as of August 31, 2021. “Forward 10-Year CAGR” is computed using monthly total returns (gross of dividends). “P/E Ratio” is the
trailing 12-month price-to-earnings ratio. Historical sample size extends from January 1957 through August 2021.
(1) Each dot represents the S&P 500’s trailing 12-month price-to-earnings ratio for a given month and the index’s resulting forward CAGR over the next 10 years from that month.
Blackstone |Blackstone Investment Strategy 27
V. Investing Mega-Trends
Blackstone |Blackstone Investment Strategy
GLOBAL EQUITY FLOWS
YTD flows into equity funds have already set record high as investors hunt for yield amid low rates, high prices
Annual Global Equity Flows(US$ in billions)
28
Source: BofA Global Investment Strategy and EPFR Global, as of June 30, 2021. Represents net inflows into global equity funds.
Global Equity Flows: Historical vs. 2021 Pace(US$ in billions)
-$200
$0
$200
$400
$600
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021 Y
TD
$0
$200
$400
$600
$800
$1,000
$1,200
Cumulative Sum: 2002-2020 H1 2021 (Annualized)
Blackstone |Blackstone Investment Strategy 29
E-COMMERCE TRENDS
The historic strength of the US consumer should continue to benefit trends such as e-commerce
E-Commerce Sales Growth(YoY share of total retail sales)
2020 E-Commerce Sales(share of total retail sales)
Source: Euromonitor International Retailing 2021 Edition; McKinsey Global Institute analysis.
24%
27%
20%
9%
14%
7%8%
10%
0%
1%
2%
3%
4%
5%
6%
Annual average of 2015-2019 2019-2020
Blackstone |Blackstone Investment Strategy
(6,000)
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
0
1,000
2,000
3,000
4,000
5,000
1980 1985 1990 1995 2000 2005 2010 2015 2020
Single-Family Multi-Family
Source: US Census Bureau, US Department of Urban Housing and Development, and Blackstone Investment Strategy, as of December 31, 2020. “Home Completions” is the number of total new privately
owned housing units completed in each calendar year, calculated as the average of monthly units completed at a seasonally adjusted annual rate. “Multi-Family” housing units are defined as total less
single-family. The “historical average” is the average of annual housing completions in each respective category from 1968 to 2020.
US HOUSING CONSTRUCTION
House construction has lagged consistently since the GFC bubble, setting up a new housing “super-cycle”
Surplus (Shortfall) of US Home Completions, Relative to Historical Average(thousands of units, rolling 10-year sum)
30
Cumulative shortfall of over
4 million units since 2010
Blackstone |Blackstone Investment Strategy 31
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