The State of the Industry and Outlook for 2024

On Wednesday, December 6, 2023, SIFMA hosted our annual State of the Industry Briefing to share a recap of markets in 2023 and our outlook for 2024. This is an important opportunity to share the industry’s insights into key trends in the capital markets as well as an overview of SIFMA’s priorities on behalf of our members in the year ahead.

I was joined by Ken Cella, Chair of SIFMA’s 2023-2024 Board of Directors. Ken serves as Principal, External Affairs and Community Engagement for Edward Jones and outlined several priorities for his tenure with us.

You can watch a replay of our wide-ranging conversation here. Below are four highlights that I’d like to share with you:

Markets are soldiering through the Federal Reserve’s actions, the 10-year Treasury rate, and other macroeconomic factors.

Inflation, rising rates, recession risk, wars, regional bank turmoil, debt ceiling debate, and a U.S. sovereign debt downgrade by a ratings agency. Despite all of these headwinds, Equity markets remain in positive territory, +19.4% from January to November, and we are seeing better issuance this year than last. However, we continue to experience significant uncertainty and the environment keeps changing. As we move into 2024, we should get more clarity on the going-forward state of the economy, the cost of credit, and the discount rate for stock valuations.

Below are some key statistics from SIFMA Research (as of November 2023 except where noted):

Data & Trends: Capital Formation, M&A, & Private Equity

• Total Equity Issuance (ex-SPACs)
  • FY22 $99.4B, -77.1% Y/Y
  • YTD $129.5B, +39.1% Y/Y
    • Secondaries $97.7B, +35.2% Y/Y
    • Preferreds $11.8B, -4.7% Y/Y
  • IPOs (ex-SPACs)
    • FY22 $8.5B, -94.4% Y/Y
    • YTD $20.0B, +136.2% Y/Y
  • SPACs
    • FY22 $13.1B, -91.9% Y/Y
    • YTD $3.6B, -71.9% Y/Y
  • M&A
    • FY22 $1.7T, -37.3% Y/Y
    • YTD $1.3T, -20.8% Y/Y
  • PE (as of 3Q23)
    • FY22 $1.0T, -23.8% Y/Y
    • YTD $611.6B, -24.8% Y/Y

Volatility, Equity & Options Volumes

• Volatility (VIX, average)
  • FY22 25.64, +30.4% Y/Y
  • YTD 17.20, -33.8% Y/Y
• Equity ADV
  • FY22 11.9 billion shares, +4.1% Y/Y
  • YTD 10.9 billion shares, -8.8% Y/Y
• Multi-listed options ADV
  • FY22 41.1 million contracts, +5.0% Y/Y
  • YTD 44.1 million contracts, +7.2% Y/Y

Fixed Income

• Issuance (long-term only)
  • Total fixed income
    • 2022 $8,882.2B, -33.9% Y/Y
    • YTD $7,851.4B, -7.9% Y/Y
  • UST
    • 2022 $3,826.8B, -25.5% Y/Y
    • YTD $3,364.0B, -9.0% Y/Y
  • Corporate bonds
    • 2022 $1,369.8B, -30.2% Y/Y
    • YTD $1,408.1B, +3.8% Y/Y
      • HY $171.7B, +56.3% Y/Y
      • IG $1,233.2B, -0.4% Y/Y
      • Convertible $3.3B, -59.8% Y/Y
  • Municipal bonds
    • • 2022 $390.8B, -19.2% Y/Y
      • YTD $352.6B, -4.9% Y/Y
  • MBS
    • • 2022 $2,146.1B, -53.2% Y/Y
      • YTD $1,215.1B, -40.6% Y/Y

• Outstanding (as of 2Q23)
  • Total fixed income
    • 2022 $41.5T, +5.2% Y/Y
    • YTD $42.8T, +5.6% Y/Y
  • UST
    • 2022 $23.9T, +6.0% Y/Y
    • YTD $24.9T, +6.8% Y/Y
  • Corporate bonds
    • 2022 $10.4T, 0.9% Y/Y
    • YTD $10.6T, +2.2% Y/Y
  • Municipal bonds
    • 2022 $4.0T, -1.3% Y/Y
    • YTD $4.0T, -0.5% Y/Y

We just released SIFMA’s semiannual survey of our SIFMA Economist Roundtable. This group includes 20+ chief U.S. economists from global and regional financial institutions. We analyze the Roundtable economists’ expectations for GDP, unemployment, inflation, and interest rates, among others. This latest survey found:

• 87% of our survey respondents believe the Fed is done, i.e. no more rate hikes; and
• 47% of respondents expect the Fed might begin cutting rates in 2Q24, followed by 27% each for 3Q24 and 4Q24

In 2023 we saw a continued uptick in regulatory activity, the cumulative impact of which has the potential for far-reaching consequences.

This activity is led by the U.S. Securities and Exchange Commission which has proposed 63 new rules since 2021, of which 24 have been finalized. In 2023, the SEC proposed 20 new rules and finalized 17 pending proposals. The SEC has indicated it intends to propose another 11 rulemakings according to the Reg Flex Agenda. Looking at the pending SEC rule agenda, we remain focused and concerned about several major rulemakings including equity market structure (Order Competition, Best Execution, Tick Size, Rule 605, Fee Tiering), Treasury market transparency and clearing, Dealer Definition/ATS, Open End Fund Liquidity, Custody, Predictive Data Analytics, and Reg SCI. You can follow all this activity in our SEC Rulemaking Tracker.

Meanwhile, U.S. prudential regulators have proposed their Basel III Endgame package of reforms as well as rules related to resolution planning and longer-term debt requirements for non-GSIB Large Banking Organizations (<$100B) and Foreign Banking Organizations. These rules would unjustifiably and unnecessarily increase capital requirements, putting firms at a competitive disadvantage and harming the economy, markets, businesses and households. And the U.S. Department of Labor proposed its much anticipated, so-called Retirement Security proposal which threatens to limit investor access to advice and education while also limiting their choice in advisors. Much of it is a reprise of the 2015 fiduciary rule that was struck down by the 5^th Circuit Court of Appeals.

Transitioning to an accelerated settlement cycle will dominate 2024.

Just 173 days from today, the U.S. will transition from the current T+2 days settlement cycle to T+1. In 2020, SIFMA and its industry partners the Investment Company Institute and The Depository Trust & Clearing Corporation began collaborating on efforts to move to T+1.  In 2021 we announced the effort publicly, and the SEC issued its proposal to accelerate the settlement cycle in 2022. This move will reduce settlement risk well beyond what was achieved under T+2, as well as increase settlement efficiencies and improve the use of capital, especially in periods of high volatility. We now lead several industry working groups to help prepare for the transition and test systems, and we have published The T+1 Securities Settlement Industry Implementation Playbook to assist market participants with their transition work as well.

This work is undertaken as our industry defends against the ever-present threat of cyberattacks and seeks to achieve the resilience that is critical to the strength of our capital markets.

By building a diverse talent pipeline, we can foster diversity, equity and inclusion in the financial services industry.

Together with our members, we strive to provide firms across the financial services industry with the resources needed to achieve, expand and promote workforce, client, and supplier diversity and inclusion. Through a six-pillar approach, SIFMA’s Diversity & Inclusion Advisory Council assists member firms in developing their diversity initiatives to increase inclusion in the workplace and in their efforts to market to diverse customers.

The SIFMA Invest! program and virtual platform offers students enrolled at Historically Black Colleges and Universities and Minority Serving Institutions a myriad of educational, industry research and career development opportunities to pursue a career in financial services. SIFMA has partnered with a number of organizations including the Milken Institute’s HBCU Strategic Initiative and Fellowship Program, which aims to empower students from HBCUs by equipping them with the skills and connections necessary for successful careers in finance and the fundamentals of Wall Street. Following a successful launch in 2023, the 2024 cohort will include 20 new fellows from a variety of HBCUs.

For more, I encourage you to explore SIFMA’s 2024 Capital Markets Outlook. This report contains SIFMA and our members’ insights into the markets, the industry’s viewpoints on critical policy issues, and several helpful resources, all guided with one thing at top of mind – our clients. We hope you find it of interest and of use.

—

Kenneth E. Bentsen, Jr. is President and CEO of SIFMA. From 1995 to 2003, he served as a Member of the United States House of Representatives from Texas. Prior to his service in Congress, Mr. Bentsen was an investment banker specializing in municipal and housing finance.

Watch On Demand: SIFMA’s 2023 State of the Industry Briefing

Related Resources

• Featured Report

  2024 Capital Markets Outlook

• Video

  On Demand: 2023 State of the Industry Briefing

• SIFMA Research

  2023 End-Year Economic Survey