The Week in Charts (6/14/24)

View the video of this post here.

Don’t miss my big live show with YCharts coming to you next Tuesday (June 18) @ 2pm EST. Register HERE to reserve your spot (if you can’t attend live, sign up to receive a replay). Topics:

• The Single Best Hedge Against Inflation
• Living in a Higher for Longer World
• Why You Shouldn’t Mix Politics and Your Portfolio
• 3 Huge Secular Trends are Getting Stretched
• Finding the Next Nvidia
• 4 Key Charts to Watch in the 2nd of Half of 2024
• Live Q&A
• And Much More!

The most important charts and themes in markets and investing…

1) Positive and Negative Framing on Inflation

Framing is everything when it comes to economic data.

Positive framing on inflation:

• The latest headline (3.3%) and core CPI (3.4%) readings both came in 0.1% lower than expectations with core inflation hitting its lowest level since April 2021.

• With the exception of Transportation, every major CPI component has a lower rate of inflation today than in June 2022 when CPI peaked at 9.1%.

• Shelter, the single biggest component of CPI (over one-third of the index), has now moved down on a YoY basis for 14 straight months (from a peak of 8.2% in March 2023 to 5.4% today). Given its long lag versus real-time data (Asking Rents down 0.8% YoY), a continued move lower in Shelter CPI is expected which should lead to a continued decline in core CPI.

• Food at Home (groceries) increased 1.0% YoY, tied for lowest reading since June 2021. Food away from Home (restaurants) increased 3.4% YoY, the lowest reading since July 2020.

• Wage growth has now outpaced inflation on a YoY basis for 13 straight months.

Negative framing on inflation:

• The US Inflation Rate has now been above 3% for 38 consecutive months, the longest period of high inflation since the late 1980s/early 1990s.

• Shelter CPI has now been above 5% for 26 consecutive months, the longest period of elevated housing inflation since the early 1980s.

• While the rate of inflation may be trending lower, that doesn’t mean prices are coming down. The cumulative rate of inflation over the past four years has outpaced the growth in wages in most categories.

2) Positive and Negative Framing on Employment

Depending on how you frame it, US labor market trends can be viewed in a positive or negative light.

Positive framing on employment:

• 272,000 new jobs were added in May, 100k higher than expectations.

• This was the 41st consecutive month of jobs growth and is not far from becoming the 2nd longest run ever.

• Average hourly earnings increased 4.1% over the past year to a new high of $34.91. 5 years ago the average hourly wage in the US was $27.88.

• The current US Unemployment Rate of 4% remains well below the historical average of 5.7% since 1948.

Negative framing on employment:

• Total jobs in the US increased 1.8% over the last year, the slowest growth rate since March 2021.

• Job Openings have moved down to 8 million, the fewest since February 2021.

• The US Unemployment Rate moved up to 4.0% in May, the highest level since January 2022.

• The US Unemployment Rate is now 0.6% above the cycle low from April 2023 (3.4%). Historically, that 0.6% move higher has occurred near the start of a recession.

3) Fed Message: We Need “Greater Confidence”

The Fed held rates at 5.25-5.50% this week, stating they need “greater confidence that inflation is moving sustainably toward 2 percent” before cutting.

When they will get that confidence?

The market is currently saying by September with a >70% probability of a rate cut priced in for that month.

But that’s not a done deal by any means. The market has been very wrong so far this year, originally expecting the first rate cut to occur in March with 6-7 cuts before year-end. Today that’s moved down to 1-2 cuts and if inflation surprises to the upside in the coming months it could change once again.

As for the Fed, they lifted their median year-end forecast for the Fed Funds Rate up to 5.1% from 4.6% previously, indicating just one rate cut in 2024.

Their projections for 2025 and 2026 point to a slower move lower, with 100 bps cuts in both years.

Assuming the Fed’s preferred measure of inflation (Core PCE) moves down to 2.3% in 2025 and 2.0% in 2026 as they are projecting, this means monetary policy could remain restrictive for another two and a half years. That would be a big shift from the persistent easy money policies in place from 2009 through 2022.

4) A Growing Central Bank Divergence

The Fed is holding the line for now, but the rest of the major developed central banks have been slowly moving over to the easing camp, one by one. Switzerland kicked it off in March with their first rate cut since 2015. Then Sweden cut in May for the first time since 2016. And last week we saw the ECB, Canada, and Denmark all cut rates by 25 bps.

Why are the ECB and Bank of Canada cutting rates while the US is still holding out?

Not only are their reported inflation rates lower than the US (at 2.6% and 2.7% vs. 3.3%), but their economic growth rates are significantly lower as well:

• Eurozone real GDP YoY: +0.4%
• Canada real GDP YoY: +0.5%
• US real GDP YoY: +2.9%

Hence, they’re are becoming more worried about growth than inflation whereas inflation remains the bigger concern for the Fed.

5) The Best Start to a Presidential Election Year Ever

All news continues to be good news for US stocks with investors cheering on the latest employment and inflation data as well as the FOMC meeting.

The S&P 500 has already hit 29 all-time highs this year, averaging more than one a week thus far in 2024.

The S&P 500 also crossed above 5,400 for the first time, its 6th 100-point milestone of the year. It took 757 days for the S&P 500 go from 4,800 to 4,900 and just 140 days to go from 4,900 to 5,400.

At 5,434, the S&P 500 is now above every 2024 year-end price target from Wall Street strategists. And there’s still six and half months to go.

The 13.9% gain for the S&P 500 in the first 114 trading days of 2024 is the best start to a presidential election year in history.

6) Secular Trends Getting Stretched?

A number of secular trends seem to be getting stretched here:

• The ratio of Large Cap stocks to Small Cap stocks has moved up to its highest level since April 2000.

• The ratio of Growth stocks to Value stocks has moved up to its highest level since July 2000.

• The ratio of US stocks to International stocks is at another a record high, extending its streak of outperformance to 16 years. This is by far the longest period of US dominance that we’ve ever seen. Over the past 16 years, US stocks have gained 457% versus 96% for International stocks and 48% for Emerging Markets.

7) The First $4 Trillion Company?

For the first time in history, there are three US companies with a market cap over $3 trillion (Microsoft, Apple, & Nvidia).

Who will be the first to hit $4 trillion? My poll results from X…

8) Why Stock Picking is So Hard (see video here)

Only a small # of companies have been responsible for the vast majority of shareholder wealth creation:

• 3 stocks (.01%) = 10% of lifetime wealth creation

• 72 stocks (.26%) = 50% of lifetime wealth creation

Most stocks not only underperform the market but actually underperform Treasury bills as well.

9) A Few Interesting Stats

a) The S&P 500 is now 25% higher than where it was when the Fed started hiking rates in March 2022.

b) Over the past 7 years, nearly all of the 7.5% annualized gains in the 60/40 US stock/bond portfolio have come from the stock side, with the S&P 500 gaining 11.6% per year versus just 0.8% per year for bonds.

c) These are the best performing stocks in the S&P 500 over the last 30 years…

d) “A boom in long-shot bets tied to GameStop and other degen favorites has helped send average daily volumes in options to almost 47 million this year, the highest level on record.” – WSJ

e) The ISM Manufacturing PMI has been below 50 (in contraction) for 18 out of the last 19 months. The last time that happened? 2000-02.

f) Tesla has now been in a drawdown for 952 days, the longest downturn since its IPO in 2010. Currently 55% below its November 2021 peak.

If we can help guide you on your road to wealth, reach out today for a FREE Wealth Path Analysis from Creating Planning.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.

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