The Week in Charts (11/4/24)
View the video of this post here.
The 2024 Presidential Election is finally here. If it’s anything like the last few elections, many investors will use this as a reason to make big changes to their investments.
Historically, has mixing politics and your portfolio been a good idea?
No. The stock market tends to go up during most presidencies and over long periods of time buy-and-hold has trounced a strategy of investing in only republican/democratic administrations (see 2 charts below).
As we approach year-end, make sure you have a portfolio and a plan that will meet your goals and needs for the future, regardless of which political party is in power.
At Creative Planning, we look at all elements of your financial picture to ensure your money is working as hard as it can for you, year in and year out. Reach out today for a FREE Wealth Path Analysis. We work with clients in all 50 states and abroad, with over $325 billion in assets under management and advisement. Why not give your wealth a second look?
The most important charts and themes in markets and investing…
12,000 US Jobs were added in October, the smallest gain since December 2020 and well below estimates of a 125,000 increase. The prior two months were both revised lower as well (-31k for September, -81k for August).
This was, however, the 46th consecutive month of payroll growth in the US, one of the longest runs we’ve seen in the last 100 years.
The big question is how much of an impact the hurricanes (Helene & Milton) had on the October payroll number. The real answer: we have no idea. There was likely at least some impact but the BLS stated in their report that it’s “not possible to quantify” how much. The Boeing strike was also factor in October and likely contributed to the decline in manufacturing jobs during the month.
The BLS said these issues had “no discernable effect” on the Unemployment Rate, however, which is derived from the Household Survey. The Unemployment Rate held steady at 4.1% in October and remains well below the historical average of 5.7%.
More important than any single monthly jobs number (which is often revised in subsequent months) is the longer-term trend. On that front, total jobs in the US increased 1.4% over the last year, the slowest growth rate since March 2021 and below the historical average of 2%. The labor market is clearly cooling.
Additional evidence of that can be seen the latest numbers for Job Openings (7.44 million, fewest since January 2021) and the Quits Rate (1.9%, lowest since June 2020). Two and a half years ago we were experiencing the tightest labor market in history, with the demand for labor far exceeding supply. Today, we’re much closer to a state of equilibrium.
While the labor market may be cooling, we’re not yet seeing big layoffs and workers still seem to have bargaining power when it comes to boosting their wages. Average Hourly Earnings in the US hit another new high in October, increasing 4% over the last year. That’s still well above the historical average increase of 3.1%.
The first reading for 3rd quarter US Real GDP came in slightly below expectations, showing a 2.8% annualized gain.
The US economic expansion that started in April 2020 is now 54 months long.
Does that mean a recession is imminent? Not necessarily.
The last 4 US expansions lasted a minimum of 73 months with the 2009-2020 expansion running for record 128 months.
The US Consumer continues to drive the lion’s share of growth (+2.5%), with Government spending (+0.9%) a major contributor as well.
3) All Roads Lead to Inflation
“Keep your eye on one thing and one thing only: how much government is spending. Because that’s the true tax. If you’re not paying for it in the form of explicit taxes, you’re paying for it in the form of inflation or borrowing.” – Milton Friedman
Over the last 10 years, US Federal Government Tax Revenue has increased 63% while Government Spending has increased 93%.
How is that possible?
Simply put: we’re borrowing from the future to spend more money today. The US National Debt continues to surge higher, increasing by over $800 billion in just the last 3 months.
What will happen after the election? If the proposed policies under either party are implemented, we’re looking at much high debt levels to come.
All roads seem to lead to inflation.
Speaking of inflation, 5-year breakeven inflation rates hit their highest levels since May last week (2.38%).
This fact along with the huge issuances of new debt are pushing long-term bond yield higher. The 10-year Treasury yield ending the week at 4.36% and the 30-year yield at 4.56%. These are the highest rates we’ve seen since early July.
After the Fed cut rates in September, the market was pricing in a Fed Funds Rate of 2.80% by the end of 2025.
Today, the expectation for the end of 2025 has moved up to 3.60%.
The market seems to be sending the Fed a clear message: slow down. What that means for the FOMC meeting this week is likely a smaller 25 bps rate cut, with the Fed Funds Rate moving down to 4.50-4.75%. What happens after that remains to be seen, but a continued rise in inflation expectations and long-term bond yields will be difficult for the Fed to ignore.
It was a big earnings week for Big Tech. Here’s a summary of the reports:
- Google’s revenues increased 15% over the last year to a new record high of $88.3 billion ($2 billion above estimates). Net income increased 34% YoY to a record $26.3 billion. Operating margins moved up to 32% from 28% a year ago.
- Microsoft’s revenues increased 16% over the last year to a new record high of $65.6 billion. Net income grew 11% YoY to a record $24.7 billion. Azure and cloud services revenue increased 33% YoY.
- Meta revenues increased 19% over the last year to a new record high of $40.6 billion. Net income increased 35% YoY to a new record high of $15.7 billion. Operating margins increased to 43% from 40% a year ago.
- Amazon revenues increased 11% over the last year to a new 3rd quarter record of $159 billion. Net Income increased 55% YoY to $15.3 billion, the highest quarterly profit to date. Operating margins increased to a record 11% from 7.8% a year ago.
- Apple revenues increased 6% over the last year to $94.9 billion, a record high for the 3rd quarter and highest growth rate since Q3 2022. Net income fell 36% year-over-year to $14.7 billion due to a one-time charge from a tax decision in Europe.
Overall, it’s been a very strong quarter led by the gains in big tech (record profits at Google/Microsoft/Meta/Amazon). With 72% of companies reported, S&P 500 Q3 Earnings are up 14% over the past year, the 7th consecutive quarter of positive YoY growth.
Trailing 12-Month S&P 500 operating earnings are on pace to hit another record high in Q3, up 8% over the last year.
6) A Housing Market Frozen in Time
Fewer US existing homes are selling today than at any point since 2010. The 3.84 million annual rate is even below the lowest level of sales during the 2020 covid shutdowns (4.01 million).
Sales of existing homes in the US are on pace for their lowest annual total since 1995.
The housing market continues to be frozen in time, driven in large part by the lock-in effect (those with ultra-low mortgage rates unwilling/unable to move) and affordability at record lows.
While demand has plummeted over the past few years, supply has contracted even more. This continues to push US Home Prices to new highs (+4% YoY) despite the affordability constraints.
The good news, though, is supply is slowly rising, with existing home inventory up 22% in the past year. That’s the highest supply we’ve seen since September 2020.
If this trend continues heading into 2025 we should see slower rates of home price appreciation ahead.
US Asking Rents were down 0.7% over the last year, the 17th consecutive month showing a YoY decline.
Rents have been held down by a multi-family construction boom that significantly increased supply and is leading to the highest vacancy rates (6.8%) since 2020.
Adjusted for wage growth, Rents are now at their most affordable level since March 2021.
8) A Few Interesting Stats…
a) Apple has bought back $655 billion in stock over the past 10 years, which is greater than the market cap of 490 companies in the S&P 500.
b) Amazon’s AWS revenue over the last 12 months ($103 billion) was higher than the revenue of 468 companies in the S&P 500.
c) The combined revenue of the Big 4 US tech companies hit a record $1.6 trillion over last 12 months.
- Amazon: $620 billion
- Apple: $391 billion
- Google: $340 billion
- Microsoft: $254 billion
That’s larger than the GDP of all but 15 countries.
d) Meta’s Reality Labs unit lost another $4.4 billion in Q3, bringing its cumulative losses since 2020 up to $55 billion.
e) Home Price changes since 2000…
- Australia: +391%
- Canada: +349%
- UK: +249%
- US: +212%
- Japan: -22%
Every week I do a video breaking down the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.
The post The Week in Charts (11/4/24) appeared first on Charlie Bilello’s Blog.
