The Week in Charts (3/26/24)

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The most important charts and themes in markets and investing…

1) The Fed’s 2% Inflation Farce

The Fed chose to hold interest rates steady once again at a range of 5.25-5.50%.

This was not a surprise.

What was a surprise, however, is the fact that they continued to forecast 3 rate cuts in 2024 despite raising their expectations for growth (real GDP of 2.1% vs. 1.4% last December) and inflation (Core PCE of 2.6% vs. 2.4% last December) and lowering their expectations for Unemployment (4.0% vs. 4.1% last December).

Which means the Fed’s 2% inflation target is a farce and they seem willing to continue holding the line until the “job is done.” Instead, they want to error on the side of easing, and start cutting rates before the war against inflation has been definitively won.

On that point, February’s CPI of 3.2% is expected to rise to 3.4% in March (Cleveland Fed forecast below), moving further away from the Fed’s 2% target.

And then there’s the pesky fact that we’re 11% above the 2% inflation trendline since the start of 2020. Which means that even if we got back to 2%, it wouldn’t erase the above-average inflation we’ve all endured over the past few years.

Here’s the average annual US inflation over the past 1-10 years…

• 1 Year: 3.2%
• 2 Years: 4.6%
• 3 Years: 5.7%
• 4 Years: 4.7%
• 5 Years: 4.2%
• 7 Years: 3.5%
• 10 Years: 2.8%

Nowhere to be found: 2% inflation.

2) A Return to Sanity.

In May 2020, there were 21 countries with negative interest rates. Today, after the Bank of Japan hiked rates back above 0%, there are none. Sanity has returned to the global bond market.

3) One of the Best Starts to a Year

S&P 500 was up 9.7% in the first 57 trading days of 2024, the 15th best start to a year going back to 1928.

The 100-point milestones continue, with the S&P 500 crossing above 5,200 for the first time.

We’ve already seen 20 all-time highs this year, still on pace to exceed the record from 1995.

Did the experts see this coming? Not exactly. The average strategist was forecasting a gain of less than 2% for the S&P 500 in 2024. With the S&P 500 up nearly 10%, it already exceeds every year-end forecast but one.

4) The Reddit IPO

Reddit ($RDDT) became the first social media company to go public since 2019, pricing its IPO last week at $34 per share. This valued the company at $6.5 billion, 35% below its highest private market valuation ($10 billion) in 2021.

But that gap is closing quickly, as the shares have surged 76% above the IPO price, pushing its market cap up to $9.5 billion.

Investors seem to be optimistic about Reddit’s growth prospects, with a Price to Sales ratio above all other social media companies.

As for it’s P/E ratio, that’s impossible to calculate, as Reddit is still losing money…

5) The Apple Monopoly?

The justice department filed a case against Apple last week for violating antitrust laws:

“Rather than respond to competitive threats by offering lower smartphone prices to
consumers or better monetization for developers, Apple would meet competitive threats by
imposing a series of shapeshifting rules and restrictions in its App Store guidelines and developer agreements that would allow Apple to extract higher fees, thwart innovation, offer a less secure or degraded user experience, and throttle competitive alternatives. It has deployed this playbook across many technologies, products, and services, including super apps, text messaging, smartwatches, and digital wallets, among many others.” – U.S. v. Apple Inc.

The stock sold off 4% on the news, and is now down 11% year-to-date.

Apple has been an incredible outperformer over the last decade (+891% vs. +235% for the S&P 500) but its recent slide has brought its relative strength back to July 2021 levels.

6) Most Unaffordable Housing Market Ever

The monthly mortgage payment needed to buy the median-priced home in the US has increased 80% over the last 4 years, moving from $1,500 per month to $2,700.

The combination of skyrocketing prices and skyrocketing interest rates have brought us to this point, and the only way out is a) lower rates or b) lower prices.

While off its high from last year, the 30-year mortgage rate of 6.9% remains prohibitive for many buyers.

And prices continue to rise, driven in large part by a massive shortage in supply.

The good news: supply is slowly coming back, with new listings rising 15% over the last year to their highest level since September 2022. An increasing number of sellers who have been holding off from listing their homes (wanting to keep their ultra-low mortgage rates) are now listing.

7) A Few Interesting Stats…

a) Since the end of 2019, the US Treasury market has increased by over 60% to $27 trillion. Another $2.4 trillion net debt was issued in 2023 to finance the deficit.

b) 10 out 11 major central banks around the world are expected to cut interest rates sometime in 2024. If that occurs, it would be the most coordinated rate-cutting cycle we’ve seen since 2008.

c) Analysts are forecasting Nvidia’s annual revenue will jump to $131 billion by 2026, more than double the $61 billion recorded in the fiscal year that just ended.

d) The surge in home prices in recent years has led to record $32.6 trillion in U.S. housing market equity, up 81% in the past 5 years. Debt as a percentage of housing market value has decreased over this time from 36% to 28%. Back in 2012 when U.S. home prices bottomed, there was more debt in housing than equity.

And that’s all for this week. Have a great week and Happy Easter!

-Charlie

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