The Week in Charts (11/13/23)

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The most important charts and themes in markets and investing…

1) Big Tech and Everyone Else

The top 2 stocks in the S&P 500 (Apple & Microsoft) now represent a combined 14.7% of the index, the highest weighting for any two companies with data going back to 1980.

What’s driving this record concentration?

Significant outperformance, with Microsoft up 55% year-to-date and Apple up 44% versus a 16% gain for the S&P 500.

Both stocks have hit new all-time highs in 2023 while the S&P 500 remains 5% below its peak from January 2022.

Meanwhile, the average stock in the S&P 500 is up only 1% this year (S&P 500 equal weight, $RSP ETF).

Small caps (Russell 2000, $IWM ETF) are faring even worse, down 2% year-to-date, and their relative strength versus large caps (S&P 500, $SPY ETF) is now back to December 2000 levels.

With the Nasdaq 100 ETF ($QQQ) up 43%, the ratio of big tech to small caps has surged higher and has now surpassed peak levels from back in 2000.

2) Gaining on Walmart

Walmart has been the top revenue-generating company in the US for the last 20 years. With $631 billion in sales, it remains there today but its lead over the #2 company (Amazon) is narrowing fast…

• 25 years ago: Walmart revenue 305x larger than Amazon
• 20 years ago: Walmart revenue 51x larger than Amazon
• 10 years ago: Walmart revenue 7x larger than Amazon
• 5 years ago: Walmart revenue 2x larger than Amazon
• Today: Walmart revenue 1.1x larger than Amazon

3) Rising Debt, Rising Interest Rates, Rising Delinquencies

Total US Credit Card debt hit a record $1.08 trillion in the 3rd quarter, rising 16.6% over the last year.

Meanwhile, the average interest rate on US credit card balances has moved up to 21.2%. With data going back to 1994, that’s the highest rate we’ve ever seen.

Needless to say, more debt at higher interest rates is not a good combination.

The share of credit card balances in delinquency has moved up to 8%, the highest level in over a decade.

And over 6% of subprime auto borrowers are at least 60 days late on their payments, the highest % on record.

4) CPI Set to Decline

The next update on US inflation will be released this week and it’s likely to show a move back down. The consensus estimate is for a 3.3% year-over-year increase in overall CPI, down from 3.7% last month.

Helping the move lower has been the recent decline in gas prices. At $3.40 per gallon, these are the lowest prices we’ve seen since March and 40 cents below year-ago levels.

Used car prices are also trending lower, down 6 months in a row.

With wholesale used car prices down 19% from their peak (lowest levels since March 2021), this trend should continue in the coming months.

5) A Fed on Hold

The last FOMC meeting of the year is exactly one month from today, and market participants are expecting the hold to continue (85% probability).

Even if the Fed is done hiking rates, this has still been an incredibly rapid adjustment, moving from the ultra-easy 0% policy to a restrictive stance. The 5.25% increase in the Fed Funds Rate over the past 2 years is the biggest 2-year increase since 1979-80.

6) A Global Shift

The Fed was not alone in normalizing policy. Indeed, it was a global shift from easing (negative real rates) to tightening (positive real rates). Here’s a look at central bank rates from 2 years ago versus today…

7) Indulging on Experiences

Americans continue to spend lavishly on experiences, providing a huge boost to the economy.

One example: the cheapest tickets available for a Taylor Swift concert in Miami next October are selling for over $1,500.

Traveling to these concerts has become increasingly common, as has traveling in general. There’s now been a complete recovery in air travel with the number of airline passengers in the US recently exceeding 2019 levels for a record 68 consecutive days.

8) Is Housing Supply Finally Starting to Normalize?

The biggest issue confronting the housing market has been affordability, and its impact on both demand and supply. In terms of the latter, perhaps the tide is beginning to turn, with the number active home listings slowly trending higher. This is noticeably different than the previous few years where we saw supply falling at this point in the year.

With more supply and a continued lack of demand, we’re also seeing a higher percentage of sellers cutting their prices (6.8%) than in prior years.

9) Improving I Bonds

The fixed interest rate on I Bonds has moved up to 1.3%, the highest we’ve seen since 2007. Added to this is the semi-annual inflation rate which brings the total annualized rate up to 5.27% for the next 6 months. The higher the fixed interest rate, the more investors are compensated above the reported rate of inflation for the duration of the bond (final maturity in 30 years with no penalty after 5 years). Back in 2000, fixed rates were as high as 3.6%, meaning investors in those bonds have been receiving a return that is 3.6% above inflation over the past 23 years.

10) WeLose Money

WeWork filed for bankruptcy last week, a little over two years since it went public via a SPAC IPO. Given its history of losing money ($16 billion in losses since 2016), this shouldn’t have been a surprise to anyone.

At its IPO in October 2021, WeWork briefly had a market cap of over $8 billion, which was down from a peak private market valuation of $47 in January 2019.

Incredibly, in September 2019 Wall Street underwriters were saying they could take the company public at a valuation of “more than $100 billion.”

11) A Few Interesting Stats…

a) The best performing stocks in the S&P 500 over the last 30 years.

b) The best performing stocks in the S&P 500 over the last 5, 10, 15, & 20 years.

c) The odds of positive return in a 60/40 portfolio increase with time…

d) The average outstanding mortgage rate in the US is just 3.6%, roughly 4 percentage points below current market rates.

e) Even before the UAW deal, unions have seen 6.6% raises on average in 2023, the biggest spike in over three decades.

And that’s it for this week. Have a great week!

-Charlie

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