In Case You Missed It: Key Charts of the Week:

By Mark Masterson on May 17, 2024

It has been said “a picture is worth a thousand words.”

This is an interesting chart I saw this weekend.

It overlays the US economic surprise index in black, along with the 10 year treasury yield and the US dollar.  If the relationship holds, both the dollar and bond yields should decline.

Ht

@PPGMacro 5 13 24

How about the below chart…..

It shows that the S&P 500 has generated average returns of 7.27% during June-August of Presidential Election years with data going back to 1928.

We are in a strong window for stocks if this holds…..

But remember – the market also tends to pull back ahead of the election. 

So – a rise into July – then decline into November?

Bank of America 5 13 24

Well – the first of two important inflation data points is out and it continues the trend of higher than expected inflation…..

• PPI higher than expected. 
• Final 0.5% m/m vs 0.3% exp
• PPI Core 0.5% m/m vs estimates 0.2%
• US Producer Prices increased 2.2% over the last year, the highest PPI reading since April 2023.
• PPI inflation is now up for 3 straight months for the first time since April 2022.

Take a look.  Clearly PPI has curled higher.

This will make it difficult for the Fed to cut rates any time soon.

Great chart from the Northmantrader showing how each and every time the VIX (Fear index) rises as markets sell-off, Yellen comes out and tells the markets she is “concerned.”  The algo’s immediately respond by sending the market higher and VIX lower as expectations for more liquidity get priced in.

VIX

Northmantrader.com 5 14 24

There may be some opportunities brewing away from the Mag 7 names.

We have highlighted international stocks.

As you can see, the US has experienced an extended period of outperformance over Asian and Europe, as well as the rest of the world.

These trends don’t tend to last this long without some reversion back to the mean.

The stats:

• All US stocks are now worth 187% of US GDP, and the rest of the world’s equities are worth only 61% of World GDP ex-US.

Is this difference in valuation justified? (Charts via Goldman)

Goldman Sachs 5 14 24

Don’t look now, but even real estate may be setting up for a bounce soon.

Fund Managers massively underweight Real Estate.  These types of extremes can often market lows or bottoms.

Bank of America 5 14 24

I love this quote from Powell…..

• POWELL: CREDIBILITY IS EVERYTHING FOR CENTRAL BANKS

I’m not sure how much credibility the Fed really has.  Powell has repeatedly said that the Fed’s policy is restrictive.  Yesterday he said “we have to let restrictive policy do its work on inflation.”

Yet – here is the Bloomberg financial conditions index right back at all time highs…..that means conditions are very, very loose.

So much for credibility.

Lawrence McDonald 5 15 24

The economic surprise index continues to fall……

This could provide some cover for a Fed cut in July or September.

• The US economic surprise index has dropped to its lowest level since January 2023.
• The economic surprise index measures economic data coming in above or below consensus estimates.
• The index hit -18.5 in May, meaning most data has been below expectations in recent weeks.
• This gauge has declined by nearly 60 points in just one month, marking the steepest decline since early 2022.
• Data such as consumer confidence and sentiment, ISM manufacturing, and services PMIs have lately surprised downward.

Kobeissi Letter 5 15 24

This chart speaks volumes.

Retail is piling into the market.

Notice when this kicked into overdrive?  The Covid lockdowns and money give-away started the retail addiction with trading stocks.  In particular, it kicked off the meme stock craze and crypto trading phase that led to the peak in 2021.

FT 5 15 24

The US Inflation Rate (CPI) has moved down from a peak of 9.1% in June 2022 to 3.4% today.

What’s driving that decline?

Lower rates of inflation in Used Cars, Gas Utilities, Fuel Oil, New Cars, Food at Home, Gasoline, Apparel, Medical Care, Food away from Home, Electricity, and Shelter.

Transportation is the only major component that has a higher inflation rate today than in June 2022.

The biggest declines came from fuel and gas.  Clearly this was a focus for the Biden administration as it impacts businesses and consumers directly.

Charlie Bilello 5 16 24

We’ll have to see if this pause in the drop for inflation continues lower – or curls up higher from here.

I suspect it moves higher.

Game of Trades 5 16 24

What are hedge funds doing these days?

• Hedge funds keep adding exposure to AI Mag Sevens like Nvidia, Amazon, Meta and Microsoft (Bloomberg)

Looks like they remain heavy long tech, and very underweight real estate, utilities, energy and materials.  

Bloomberg 5 16 24

Yet – markets have remained undisturbed.

It appears we are in a state of nirvana at the moment.

• Seasonal bias is higher into the July window in an election year. 
• At the same time, the economic data is slowing modestly – allowing for hopes of a rate cut at one of the next two Fed meetings to linger.
• Meanwhile, Yellen keeps the borrow and spending train squarely on the tracks.

All that is missing is a market that broadens out a bit.  We remain in a tech focused – narrow leadership market.

As you can see below – the S&P 500 is leading.  The Russell 2000 is lagging considerably – only up 3%.  The Dow has delivered a strong rally, but is still only up 6% year to date.

Liz Ann Sonders 5 17 24

The S&P 500 is outperforming due to the top 7-10 names.

See below…..

Liz Ann Sonders 5 17 24

Here are the stats for the Mag 7 names in the S&P 500…..

Liz Ann Sonders 5 17 24

The Dow hit 40,000 yesterday, then pulled back modestly.

Did you know that it took 121 years for the Dow Jones Industrial Average to reach 20,000.

It then took 7 years to reach 40,000.

Take a look at the chart below.

What do you notice?

The turbo charged performance for the Dow started in 2009.

What happened in 2009?

Ben Bernanke and the Fed launched the first ever Quantitative Easing program – allowing the Fed to digitally print money and buy bonds.  This QE program has been copied around the world by other central banks – ECB, BoJ etc – essentially creating massive amounts of liquidity ove the past 15 years for US and Global equities to benefit from. 

Lance Roberts 5 17 24

The surge of liquidity that started in 2009 was equally turbo charged in 2020 post covid.

Did you know that 80% of all dollars in circulation today were printed since Covid?

Again – that liquidity made its way into capital markets first as it inflated their values.  Now it has made its way into commodity markets and more traditional inflation metrics like real estate.

Fred.com 5 17 24

To cap it off, the government has also been borrowing and spending like drunken sailors…..

In less than 4 years, inflation-adjusted US government spending now exceeds the combined spending of:

– World War I

– World War II

– 1970 to 1990

Game of Trades 5 17 24

And the Fed wonders why inflation is “sticky.”

We hear how inflation is coming down.

In reality – it is just growing/rising more slowly.

In fact, according to Zero Hedge, inflation has not fallen in a single month since January 2021.

This means that overall prices are up over 19.5% in less than 4 years.

That is an average of 5.5% per year.

We have not had a year-over-year inflation print below 3% in 37 consecutive months.

Inflation is now building on previous years of inflation; we effectively have compounding inflation.

That is the problem the Fed is facing. 

While this is going on, the Fed is considering a rate cut?

Zero Hedge 5 17 24