6-Chart Saturday (12/11/21)

By Charlie Bilello

11 Dec 2021

This week’s post is sponsored by YCharts. Mention Compound to receive 20% off your subscription when you initially sign up for the service.

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5 charts from the past week that tell an interesting story in markets and investing…

1) Behind the Curve

The US Inflation rate moved up to 6.8% in November, its highest level since 1982.

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Here’s a breakdown of price increases in the CPI report:

  • Fuel Oil: +59.3%
  • Gasoline: +58.1%
  • Used Cars: +31.4%
  • Gas Utilities: +25.1%
  • Meats/Fish/Poultry/Eggs: +12.8%
  • New Cars: +11.1%
  • Overall CPI: +6.8%
  • Electricity: +6.5%
  • Food at home: +6.4%
  • Food away from home: +5.8%
  • Apparel: +5.0%
  • Transportation: +3.9%
  • Shelter: +3.8%

The Fed is now far behind the inflation curve and losing any remaining credibility it once had as an inflation fighting institution. The real Fed Funds Rate of -6.7% is at its lowest level in the last 40 years, and holding rates at 0% rates continues to make 0 sense.

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So when will the Fed finally move? The bond market is now saying the first hike will occur in May 2022, with three 25 basis point hikes by the end of next year. 1, 2, and 3 year Treasury yields are moving up in anticipation of these hikes, now at their highest levels since the start of the pandemic.

2) The Best Hedge Against Inflation

The S&P 500 closed at its 67th all-time high of the year on Friday (the most of any year with the exception of 1995), confounding many as it surged higher after the inflation report.

This should not have been all that surprising, however, as stocks have historically been the best long-term hedge against rising prices.

Indeed, corporate profits have boomed this year, with an all-time high in S&P 500 earnings in each of the first three quarters.

But what about rising input costs? Companies have thus far been able to pass all of these higher costs on to their customers, with profit margins hitting record highs.

3) The First $3 Trillion Company?

No stock has exhibited more resilience to rising prices than Apple, which is vying to become the world’s first $3 trillion company. Apple has added $712 billion to its market cap this year, which is greater than Berkshire Hathaway ($644 billion market cap) and 492 other companies in the S&P 500.

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Apple has benefitted immensely from the government borrowing and free money spending spree that resulted in a record boom in retail sales.

And importantly, the consumer has been completely insensitive to rising prices, meaning Apple has not only been able to raise prices to keep pace with inflation, but expand its profit margins while doing so.

4) They Bought The DipAgain

The Omicron correction lasted only 11 days, but the rise back to new highs was even faster at just 7 days. The buy-the-dip generation lives.

With stocks hitting new highs, the recent spike in volatility completely reversed course. The $VIX fell 39% last week, its 3rd largest weekly decline ever.

5) What Goes Up

… must come down. Newton’s law of gravitation often applies to markets, and we’ve seen this yet again with many of the high flyers from 2020 coming back to earth in 2021…

6) US Leads Again

US stocks are once again besting most of their global peers, up 27.1% year-to-date versus a 6.8% gain for the average country ETF.

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The incredible run of outperformance by the US is now more than a decade long…

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And that’s it for this week.

Have a great weekend!


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