The Week in Charts (2/13/24)
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The most important charts and themes in markets and investing…
1) The Longest Inversion in History
The US Yield Curve (10-year minus 3-month) has now been inverted for 473 consecutive days, the longest inversion in history.
Historically, this has been a leading indicator of an economic downturn, but with a very long (24 months on average) and quite variable (ranging from 11 to 50 months) lead time.
As for the stock market, investors are learning once again that an inverted yield curve is not a sell signal. The S&P 500 is up over 30% since the curve first inverted back in October 2022.
2) S&P 5,000 and a Run Not Seen Since 1972
The S&P 500 closed above 5,000 last week for the first time. It took 757 days to go from 4,800 to 4,900 and just 15 days to go from 4,900 to 5,000.
The S&P 500 is already up 5.4% on the year, well above the 1.9% average gain Wall Street strategists were predicting for all of 2024.
The S&P 500 ended the week at another all-time high, its 10th of the year. If it were to continue hitting new highs at the current pace throughout the remainder of 2024 (unlikely), it would surpass the record from 1995 (77 all-time highs).
The S&P 500 has closed higher in 14 out of the last 15 weeks. That hasn’t happened since 1972.
After the 1972 rally which ended in March, the S&P 500 would trade sideways for the next 7 months before making another run higher. The bull market did not peak until January 1973. Will the same thing happen today? No. Every time is different.
3) NVIDIA > Energy
5 years ago Nvidia had a market cap of $89 billion. Last week its market cap hit $1.78 trillion. That’s a 20x increase.
Nvidia’s market cap is now over $200 billion higher than all of the companies in the S&P 500 Energy sector … combined. Meanwhile, the total net income of the Energy sector is $147 billion vs. $19 billion for Nvidia.
With the stock currently trading at over 40x sales and 95x earnings, the market seems to be pricing in not only astronomical growth rates for Nvidia, but also an ability to maintain a dominant market share (90+%) and fat profit margins (70% gross margins).
Anything is possibly, but it seems likely that competition will intensify in the years to come, with many new entrants battling Nvidia for its outsized profits and supremacy in the AI semi space.
On that front, Sam Altman (found of OpenAI) is reportedly trying to raise “Trillions of Dollars” to reshape the business of Chips and AI.
4) Profitability and Paper Hands
Profitability seems to matter again, which is to say sanity has returned to the stock market.
Exhibit A: Uber vs. Lyft
Uber has gained 93% over the last 2 years versus a 67% decline for Lyft.
Why the huge divergence?
Uber is now a profitable company ($1.89 billion in net income over the last year) while Lyft continues to lose money (-$902 million).
Exhibit B: Meta vs. Snapchat
Meta has gained 113% over the last 2 years versus a 71% decline for Snapchat.
Why the huge divergence?
Meta’s profits are soaring ($39 billion in net income over the last year) while Snapchat continues to lose money (-$1.3 billion).
Exhibit C: AMC Entertainment
AMC shares are now down 99.3% from their peak in 2021, hitting another all-time low.
AMC was losing money back in 2021 during the meme stock mania and it’s still losing money today. The only difference: investors today care about that fact.
5) Not Lovin’ It
During an earnings call last week, McDonald’s CEO Chris Kempczinski admitted that low-income customers have largely stopped ordering from the fast-food chain.
Why?
Skyrocketing prices, with some locations reportedly charging $18 for a Big Mac, fries, and a drink and $7 for an Egg McMuffin sandwich.
Fears over continued price increases are mounting with California set to increase its minimum wage for fast-food workers up to $20/hour.
McDonald’s ($MCD) has been a standout performer over the past 31 years, handily outpacing the S&P 500 ETF ($SPY).
But the stock is no longer cheap, trading at a multiple of sales (8.2) that’s more than 3x higher than the broad market. Is such a premium justified? Only if you believe its growth is set to explode higher despite losing an important segment of their customers.
6) The Secular Bear Market in Offices
The office vacancy rate in the US has moved up to 19.6%, the highest level in history.
The main reason: workers are not going back to the pre-covid model of five days per week in the office, with most major cities hovering around 50%. As long commercial leases continue to roll off, that means less space is needed going forward, with increasing vacancies over time.
The big concern for markets is that this will lead to increasing losses among regional banks, who hold a higher percentage of commercial real estate loans on their books. New York Community Bank ($NYCB) has been hit by these fears of late, down 63% on the year. It recently cut its dividend and increased reserves to cover troubled loans with Moody’s cutting its credit rating down to junk.
7) The Kids Are Alright
Since 2019, the inflation-adjusted net worth of younger adults (18-39) has increased by a whopping 75%, far outpacing the increases for 40-54 year-olds (+12%) and 55 and older (+31%).
The major driving force?
The disproportionate impact of the covid stimulus checks, with the youngest and poorest generation receiving a higher share of the stimulus, and it representing a higher percentage of their net worth. With a sizable portion of this stimulus invested in the stock market (the best-performing asset class since 2019), this drove the outsized gains for younger generations.
8) A Few Interesting Stats…
a) The average price for a 30-second Super Bowl commercial this year has moved up to a record $7 million, 169% higher than the cost in 2010 ($2.6 million). In 1967 during the first Super Bowl the price was $42k.
b) The average price of a used Tesla is now over 50% lower than the average price at the peak in 2022.
c) In 2000, Beer made up 55.5% of the global alcohol market versus 28.7% for Spirits. Today, Sprits are the leader comprising 42.2% of the global alcohol market versus 41.8% for Beer.
d) The combined revenue of the 4 largest US companies hit a record $1.5 trillion over last 12 months. That’s larger than the GDP of all but 14 countries.
e) Amazon’s AWS revenue in 2023 ($91 billion) was higher than the revenue of 463 companies in the S&P 500. From $3 billion to $91 billion in 10 years (>40% annualized growth).
And that’s all for this week. Have a great week!
-Charlie
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