The Week in Charts (3/4/24)

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The most important charts and themes in markets and investing…

1) All News Is Good News

All news has been received as good news thus far in 2024, with risk assets surging higher with nary a pullback.

The S&P 500 has closed higher in 16 out of the last 18 weeks, a stunning advance off of the October correction lows. That hasn’t happened since 1971.

The S&P 500 ended the week at another all-time high, its 15th of the year. If it were to continue hitting new highs at the current pace throughout the remainder of 2024, it would surpass the record from 1995 (77 all-time highs).

Bullish sentiment over AI continues to be the dominant market narrative, with Nvidia (+66%) and Meta (+42%) once again leading all stocks within the Enormous Eight. But a rising tide has not lifted all boats in 2024, with Google (-2%), Apple (-7%) and Tesla (-18%) all down on the year.

Within the S&P 500, the Semiconductor space has been the clear standout, with 6 out of the top 20 performers YTD.

Credit markets are reflecting increased optimism as well, with high yield spreads (322 bps) at their tightest levels since January 2022 and investment grade spreads (93 bps) their tightest levels since November 2021. Chatter over a recession and rising defaults that was widespread in 2022 have faded to a whisper.

Last but not least, crypto sentiment has become ebullient once again. Why? Prices have gone parabolic, with Bitcoin increasing over 58% so far this year, coming within spitting distance of its previous all-time high (68,991).

2) Another Strong Earnings Season

It was another strong earnings season for the S&P 500, providing fundamental support to the rally.

S&P 500 Q4 GAAP earnings per share were up 22% over the prior year, the 4th straight quarter of positive YoY growth and highest growth rate since Q4 2021.

S&P 500 TTM operating earnings hit a new record high in Q4 2023, surpassing the prior high from Q1 2022.

Top line growth, however, appears to be moderating. The 4.6% increase in S&P 500 sales over the past year was the slowest growth rate since Q4 2020.

But this was still 1.4% above the rate of inflation, the 12th consecutive quarter of positive real sales growth.

3) Home Depot Stock Surges on Earnings Decline

You read that correctly.

Home Depot’s revenues fell 3% over the last year, the 4th straight quarter of negative YoY growth. That’s the longest stretch of negative revenue growth since 2009.

Home Depot’s net income fell 17% over the last year, the biggest YoY decline since 2009.

Meanwhile, its stock is up 35% in the past year, outpacing the S&P 500’s 31% gain.

4) Higher Home Prices, Lower Affordability

US Home Prices hit another all-time high in December while affordability remains near record lows.

All 20 cities within the Case-Shiller 20-city index saw increasing prices over the past year.

US Home Prices increased 5.5% in 2023, the 12th consecutive year of nominal gains.

After adjusting for inflation, US Home Prices have never been higher.

5) Income Gains Drive Continued Expansion

US Inflation-Adjusted Personal Income (excluding transfer payments) hit a record high for the 9th month in a row in January, up 2.9% over the last year.

These gains are likely contributing to a continued economic expansion, with the Atlanta Fed forecasting real GDP growth of 2.1% in Q1.

6) Bond Market Bear Continues

While US equity markets have been hitting new highs since January, the US bond market remains in its longest drawdown in history: 43 months and counting.

The current drawdown: 11.3% from the 2020 peak.

Over the last 7 years, US bonds have returned less than 1% per year versus again of 10.5% per year for the S&P 500.

The good news for bond investors? The next 7 years should be much better, as the starting 10-year yield today of 4.2% is a big improvement over the 2.3% yield from 7 years ago. And the single best predictor of future bond returns is that starting yield.

7) Fed Cuts Pushed Back to June

Remember when markets were expecting the Fed to cut rates 7 times this year, with the first cut starting in March?

That was only two months ago but a lot has changed since then.

Today, the market is saying only 3 cuts will occur this year: a 25 bps cut in June (to 5.00–5.25%), another in July (to 4.75%-5.00%), and a final one in November (to 4.50-4.75%).

From their recent comments, the Fed seems to be in no rush to cut rates despite continued good news on the inflation front:

• The PCE Price Index moved down to 2.4% in January, its lowest level since February 2021.

• US consumer inflation expectations for the next 3 years have moved down to 2.35% (annual rate), the lowest level on record (note: survey began in June 2013).

• The Fed’s preferred measure of inflation (Core PCE) moved down to 2.85%, its lowest level since March 2021. The Fed Funds Rate is now 2.4% above Core PCE, the most restrictive monetary policy we’ve seen since September 2007.

8) Money Supply Moderation

The US Money Supply fell 2% over the last year, a record 14th consecutive month with a YoY decline.

The US Money Supply has fallen 3.6% over the last 2 years, the largest 2-year decline on record. This is a welcome moderation after the 40% increase in 2020-21.

9) More Affordable Rents

US Asking Rents in February were 1% lower than the prior year, the 9th consecutive month with a YoY decline.

Unlike the home purchase market, supply remains favorable, with the 6.6% vacancy rate at its highest level since 2020.

10) A Few Interesting Stats…

a) The US stock market is the most concentrated it’s been since at least 1980, but compared to nearly every other country it less concentrated. Among the 15 largest equity markets globally, only Japan is less concentrated in the top 10 names than the US. (see video discussion here).

b) Total Value of US Residential Real Estate…

• Suburban: $29.2 Trillion (+5.6% YoY)
• Urban: $10.1 Trillion (+3.6% YoY)
• Rural: $7.4 Trillion (+6.3% YoY)

c) Early retirements surged again in late 2023 with the gains in the stock market and home prices, leading to a record 2.7 million excess retirees in the US. (see video discussion here).

d) Total assets in money market funds have hit a record $6 trillion, increasing by $1.2 trillion over the past year and nearly doubling over the past five years.

e) % Increase in market value since the start of 2023…

• Magnificent 7: +92%
• S&P 500: +32%
• S&P 493: +17%

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

-Charlie

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