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6 charts from the past week that tell an interesting story in markets and investing…
1) The V is Complete
US Real GDP hit a new high in the 2nd quarter, surpassing the prior high from Q4 2019 and completing the v-shaped economic recovery.
What a difference a year makes…
- In Q2 2020, US real GDP declined 9% year-over-year (YoY), the largest drop ever (with data going back to 1948).
- In Q2 2021, US real GDP hit a new high, advancing 12% YoY which was the 2nd largest increase ever (highest was back in 1950).
2) Transitory Tales
The Fed met again this week and reiterated their belief that higher inflation is “transitory” and therefore can be safely ignored. The announcement surprised no one: rates will be held at 0% and they will continue to buy $120 billion per month in bonds.
What are the waiting for? “Evidence of actual inflation.”
Apparently, the highest core PCE inflation (the Fed’s preferred measure) since 1991 does not qualify.
3) Housing Boom to Bubble?
Evidence pointing to another housing bubble is growing with U.S. home prices up 16.6% over the last year, the highest rate of increase ever recorded.
The rising tide has lifted all boats, with every major metropolitan area in the the U.S. seeing a double-digit % increase over the last year.
The gap between US home price appreciation and overall inflation has never been wider.
4) China Cascade Continues
Weakness in Chinese equities continued this week, with tech shares now in a 55% drawdown from their February high ($KWEB ETF).
The ratio of broader Chinese equities to the US (MSCI Indices) is now in a 14-year bear market and at its lowest level since 2005.
While U.S. equities continued to hit new highs in July, China ($FXI down 13%) had its worst month since September 2011.
China may be starting to get the message (investor faith in “authoritarian capitalism” is waning), with its securities regulator speaking with global banks this week in a closed-door meeting. While there was no official statement, it was said that Beijing will now “consider the market impact” before introducing future regulatory policies and will continue to allow Chinese companies to go public in the U.S. as long as they meet listing requirements.
Will that be enough to allay investor fears? Stay tuned.
5) Big Tech Gets Bigger
It was a busy week for earnings, with many of the big tech names reporting. Overall, it was another strong quarter, with revenue growth numbers outpacing the broader market.
The 4 largest US companies continue to astound…
Google ($GOOGL) was a definite standout, with revenue growing 62% (highest since 2007), beating estimates by a wide margin ($61.9 billion in revenue vs. $56.2 estimated).
Apple ($AAPL) trounced estimates as well ($81.4 billion in revenue vs. $73.3 estimated), with the 50% increase in iPhone sales as the largest contributor to its overall growth.
Despite posting its third straight quarter of $100+ billion in revenue, Amazon ($AMZN) shares sold off as revenue missed estimates ($113 billion vs. $115.2 billion estimated) and 3rd quarter guidance was weaker than expected ($106-$112 billion vs. $119 billion estimated).
Amazon, Apple, Facebook, and others have warned that revenue growth is likely to decelerate going forward as comps become tougher (as they will be compared against last year’s pandemic bump up in demand).
This was evident in the slowing user growth rates in many of the social media names, including Pinterest ($PINS), which actually reported a 24 million decline in active users. The stock fell 18% on the news and is now down on the year.
How did this happen? People are living their lives again (“spending more time socializing with friends outside their homes, eating in restaurants”, etc.), which is not a “core use case” of the company. From the Pinterest shareholder letter:
6) Delta Deluge
New cases of the covid-19 in the US continue to rise as the highly contagious Delta variant becomes more prevalent.
If we follow the same path as the UK (which started their Delta wave a month earlier than us), the increases are likely to continue for at least a few more weeks before peaking.
The good news, again, is that fatality rates will be substantially lower as compared to prior waves as the vaccinations are still highly effective against preventing severe illness and deaths. At its peak in January, the UK was averaging over 1,200 deaths per day. The current 7-day average of covid-19 deaths: 72, which is 94% lower than the January high.
And that’s it for this week. Thanks for reading.
Have a great weekend everyone!
-Charlie
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