The Week in Charts (2/3/25)
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The most important charts and themes in markets and investing…
1) DeepSeek Panic
China’s AI start-up DeepSeek sparked a sell-off in US technology shares after they claimed it only took $5.6 million to build their latest model. While this was most certainly a fabrication as is the case with most information coming from China, the market reaction was swift.
Nvidia was the hardest hit, falling 17% last Monday, closing below its 200-day moving average for the first time in over 2 years. It entered the week as the world’s largest company with a market cap of $3.5 trillion and ended the week as the 3rd largest company with a market cap of $2.9 trillion.
Nvidia’s $593 billion market cap decline on Monday was by far the largest single-day decline for any company in history. The loss in value was bigger than the market cap of 487 companies in the S&P 500.
2) Meta’s Record Revenue and Profits
Meta reported another blowout quarter, with Q4 revenues increasing 21% over the past year to a record high of $48.4 billion. Net income increased 49% YoY to a new record high of $20.8 billion and operating margins increased to 48% from 41% a year ago.
Meta generated $164 billion of Revenue in 2024, a 1,220% increase over the last decade. Profits of $62 billion were 21x higher than in 2014.
Was this tremendous growth widely expected?
No. Back in September 2012, Barron’s ran a cover story arguing that “Facebook is worth $15. Stay away from the stock.” At the time, Facebook was trading at $23 per share.
What’s it trading at today under its new name of Meta?
$689 per share. That’s a 2,896% increase from the Barron’s cover story which called it “overvalued” and “a risky bet.”
3) Microsoft’s Minting Money
Microsoft reported record Revenue ($262 billion) and Net Income ($93 billion) in 2024, up 180% and 369% over the last decade.
4) Tesla and Apple: Slower Growth, Higher Multiples
Over the last 3 years, Apple’s revenues have increased 5% while its Net Income has declined 4%. Meanwhile, its stock price is 41% higher.
What does that mean? Multiple expansion, with Apple entering the year trading at nearly 10x sales and 40x earnings.
We’re seeing a similar situation in Tesla, whose stock advanced 63% in 2024 while Revenues we up just 1%.
Tesla entered the year trading at 14x sales, up from 5x sales two years ago.
5) The Fed Pause Is Here
As expected, the Fed held interest rates at 4.25-4.50%, noting elevated inflation against the backdrop of a “solid” labor market (“unemployment rate has stabilized at a low level”).
They also continued their quantitative tightening which began in April 2022, reducing their holdings of Treasury and mortgage-backed securities. The Fed’s balance sheet is now at its lowest level since May 2020, down over $2.1 trillion from its peak.
What will the Fed do next?
Based on market expectations, they will hold rates at current levels for two more meetings (March and May) before cutting another 25 bps in June (down to 4.00-4.25%). After that, only one more rate cut is priced in – a 25 bps cut in December (down to 3.75-4.00%).
But the actual path will be dictated by the incoming inflation/employment data. And on the inflation front, the Fed will want to see a reversal in the recent move higher before cutting rates again. The Fed’s preferred measure of inflation (Core PCE) remained at 2.8% in December, well above their 2% target that has yet to be achieved.
6) Houses Taking Longer to Sell
The average house for sale in the US took 54 days before an offer was accepted, the longest span since March 2020.
Why are homes taking longer to sell?
Most potential homebuyers simply can’t afford them. The latest Case-Shiller National Data showed a more moderate 3.8% increase in average home prices over the past year, but the Affordability Index remains near record lows.
7) Saving $1 Billion a Day?
The Department of Government Efficiency (DOGE) has been working overtime, saying they’ve already found savings of roughly $1 billion/day with a goal of reducing spending by $3 billion/day.
If this trend continues, the deficit will move sharply lower, which is sorely needed to avert a crisis.
The Interest Expense on US National Debt rose to a record $1.12 trillion last year, an increase of 117% over the prior 4 years. The US Government now spends more money on interest than it does on National Defense.
The Ratio of National Debt to GDP ended 2024 at 122%, up from 101% a decade ago and and 61% two decades ago.
8) Using Tariffs as a Policy Tool
The two fastest trade wars in history have occurred in the past two weeks.
The first was with Colombia over their refusal to accept illegal alien criminals who were on a flight back to their home country.
But after the threat of a 25% tariff that would go up to 50% in a week, the Government of Columbia quickly agreed to all of President Trump’s terms, including the unrestricted acceptance of all illegal aliens from Colombia.
A week later, a similar situation has played played out with Mexico, with President Sheinbaum quickly promising retaliatory tariffs in response to the 25% authorized by President Trump. But an agreement was soon reached, delaying the tariffs for a month, with Mexico sending 10,000 troops to the border to block drug trafficking.
9) A Few Interesting Stats…
a) The delinquency rate on CMBS loans for office properties has moved above 11%, the highest level on record with data going back to 2000.
b) Apple has bought back $673 billion in stock over the past 10 years, which is greater than the market cap of 488 companies in the S&P 500.
c) 67% of US 8th graders scored at a basic or better reading level in 2024, the lowest share since testing began in 1992.
d) The share of US credit card holders making only the minimum payment rose to 10.75% last year, the highest level on record with data going back to 2012.
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The post The Week in Charts (2/3/25) appeared first on Charlie Bilello’s Blog.
