The State of the Markets in 10 Charts
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Over the last 30 years, the purchasing power of the US Consumer Dollar has been cut in half due to inflation. At the same time, the S&P 500 has gained 828% (7.7% per year) AFTER adjusting for inflation. Why you need to invest for the long run, in one chart…
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The State of the Markets in 10 Charts…
1) A Historic Rally
The 17% gain in the S&P 500 over the last 8 weeks is the 20th biggest 8-week gain for the index since 1950.
What has happened in the past following the biggest short-term rallies?
Above-average forward returns (+27% average over the subsequent year vs. +11% in other periods).
2) An Unprecedented Earnings Boom
Earnings have been the fuel for the vertical advance in the stock market.
S&P 500 earnings per share far exceeded expectations in Q1 (+28% YoY vs. +13% estimate heading in) and are now expected to increase by 23% this year.
We’ve never seen earnings growth this high outside of post-recessionary rebounds. This is an unprecedented boom driven by the massive EPS gains in big tech.
3) Record Tech Dominance
Speaking of Big Tech, the S&P 500 technology sector’s relative strength versus the broad market is at its highest level in history, above the peak from March 2000.
4) Super Semiconductors
Fueled by surging AI demand, semiconductor stocks have gone parabolic with a vertical advance relative to the broad market.
The Semiconductor ETF ($SOXX) is up 163% over the past year vs. a 29% gain for the S&P 500 ETF ($SPY)
5) A Message From the Bond Market
The 30-Year US Treasury Yield hit 5.18% this week, its highest close since July 2007.
The Federal Reserve and Federal Government continue to spin the lie of low inflation while the bond market reveals the truth.
6) A Loss of Credibility
62.
As in 62 consecutive months with US inflation above the Fed’s 2% target.
CPI has now averaged over 4% per year since the start of 2020.
The Fed has lost all credibility when it comes to fighting inflation.
7) Rising Inflation
Surging commodity prices will push CPI above 4% YoY in May and US inflation will likely be above 7% annualized for the 2nd quarter unless the Iran war ends soon.
Memorial day weekend gas prices are at a 4-year high ($4.56/gallon), up over 50% since the start of the war.
8) Next Move a Hike?
The bond market is now pricing in a Fed rate hike by the end of 2026, a big reversal from expectations at the start of the year (two rate cuts).
9) Grumpy Consumer Still Spending
The US consumer sentiment index from the University of Michigan goes back to 1952.
It has never been lower than it is today.
Does that mean the US consumer is spending less?
No – at least not yet. Retail sales grew 5.2% over the past year and 1.4% after factoring in higher prices.
10) A Loss of Purchasing Power
What could derail the consumer-driven US economy?
A loss of purchasing power with inflation outpacing wages.
After 35 consecutive months of positive YoY wage growth, this important indicator has turned negative for the first time since April 2023.
And that’s it for this week. Thanks for reading!
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