10-Chart Tuesday (5/17/22)

By Charlie Bilello

17 May 2022

Note: I have a new channel on YouTube where I share my latest thoughts on markets and investing. You can view the most recent video here.

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

1) Has the Inflation Rate Peaked?

I asked this question on Twitter this week with 55% of respondents saying yes.


Let’s hope they’re right. Why the optimism?

The US inflation rate moved down to 8.3% in April from 8.5% in March, the largest tick lower we’ve seen since October 2020.

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Here’s the breakdown by major component, showing a broad-based increase in prices…

Once again, housing inflation (shelter) seems to be wildly understated at 5.1%, with rents increasing 16% over the past year and home prices advancing 20%.

2) Still Behind the Curve

The Fed has now hiked rates 0.75% but they remain far behind the inflation curve, with the gap between CPI and the Fed Funds Rate at its widest level since 1974. In 1974, the Fed Funds Rate peaked at close to 13%. Today, it’s still below 1%.

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The Fed is not alone in being slow to normalize policy. Australia, Sweden, Denmark, Norway, Canada, the UK, and the Eurozone all have central bank rates at 1% or less with inflation rates north of 5%.

Here’s an updated look at inflation rates globally…

3) Why Is Consumer Sentiment So Sour?

In the last 70 years, the only time Consumer Sentiment was this low (59.1) without the US being in a recession was a brief period during the 2011 bear market (Aug – Sep ’11).

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Why is consumer sentiment so sour?

The main reason: high inflation. The key line from the University of Michigan report: “Consumers’ assessment of their current financial situation relative to a year ago is at its lowest reading since 2013, with 36% of consumers attributing their negative assessment to inflation.”

The problem? For 13 months in a row, we’ve seen wages fail to keep pace with rising prices…

All of the US wage growth since the start of the borrowing/printing binge has been a mirage, up 11.5% in nominal terms but 0% after adjusting for higher prices.


4) Americans Still Spending, For Now

US Retail Sales are still hitting record highs despite the low consumer sentiment. This means that while Americans are not happy about rising prices, they’re still spending, at least for now.

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Part of the rise in retail sales is simply due to higher prices as inflation-adjusted sales peaked in April 2021. But real retail sales (inflation adjusted) are still 16% higher than pre-covid levels, meaning demand remains quite strong irrespective of inflation.


How is US consumer spending still so strong despite inflation outpacing wage gains for 13 straight months?

Americans are saving less, with the savings rate moving down to 6.2%, its lowest level since 2013.

They are also borrowing at an increasing rate to maintain their current standard of living. US Consumer Credit rose 7.3% over the last year, the highest rate of increase in over a decade.

5) 3 Bears in Less Than 4 Years

Since 1928, the S&P 500 has averaged 1 bear market every 4 years. If you round up (S&P peak to trough drawdown this year was 19.92%), this is now the 3rd bear market we’ve experienced in less than 4 years.

The good news for optimistic long-term investors? Every recession and bear market of the past was ultimately followed by an economic expansion and new all-time high in the future.

When will that all-time high occur?

I asked that question on Twitter, but in truth, nobody knows.


We’ve become accustomed to hitting all-time highs every year (10 straight years), but deep bear markets can take years to recover from.

After the March 2000 peak, the S&P 500 didn’t hit a new all-time high until 2007 and after the October 2007 peak, the S&P 500 didn’t hit a new high until 2013.

Will this be another deep bear market? Here’s what people are thinking…


6) Full Circle

We’ve come full circle. The ARK Innovation ETF ($ARKK) moved all the way back to its 2020 lows last week, down 78% from its high.

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Interestingly, this is the same percentage decline we saw in the Nasdaq from March 2000 to October 2002.

7) Oversold Extremes

We hit an extreme oversold extreme last week that we haven’t seen in some time. Only 8% of Nasdaq 100 stocks closed above their 50-day moving average, which was lower than 98% of historical readings and the fewest since April 3, 2020.


8) Disney: Half Off Sale

While prices at its theme parks continue to rise, Disney’s stock ($DIS) has been moving in the opposite direction, down over 50% from last year’s high. This is the largest drawdown we’ve seen for the company since 2009.

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9) Twitter Tanks

The Twitter saga continues, with Musk tweeting the deal is “on hold” pending an evaluation of the number of “spam/fake accounts.”

That sent shares sharply lower, filling the gap up from when Musk first announced his stake in the company on April 4. The stock is now more than 30% below the $54.20 offer price.

Will the deal still go through? Many still believe so, but only at a lower price…


10) An Ignominious Feat

Gas prices in the US hit another record high, rising to an average of $4.59 per gallon. A year ago the average price was $3.05 and two years ago the average price was $1.94.

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Every state in America is now above $4.00/gallon for the first time ever. California is the highest of all and has earned the ignominious feat of being the first state to ever cross above $6.00/gallon.


And that’s it for this week.

Have a great week everyone!


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