10-Chart Wednesday (6/22/22)

By Charlie Bilello

22 Jun 2022


-My latest Week in Charts Video on YouTube.

-My recent Webinar with YCharts.

-My Conversation with Anthony Pompliano.


This week’s post is sponsored by YCharts. Mention Charlie Bilello to receive a free trial and 20% off your subscription when you initially sign up for the service.


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

1) The Biggest Bounces

Only 2% of stocks in the S&P 500 closed above their 50-day moving average last week, an extreme oversold condition that rarely occurs.

What happens when the market is extremely oversold?

It tends to bounce, with above-average forward returns (see here for my full post on this)…

If a bounce comes, does that mean the bear market is over?

Not necessarily. Some of the biggest bounces in history have occurred during bear markets, as we saw from 2000-02 and again from 2007-09.

2) One Step Closer to Normal

The Fed hiked interest rates by 0.75% to a new range of 1.50%-1.75%. This was its first 75 bps increase since November 1994.

The big difference between 1994 and today? Back then, the Fed was ahead of the curve with a Fed Funds Rate of 5.7% and an inflation rate of 2.7%. Today, they remain far behind the curve, with an inflation rate 7% higher than the Fed Funds Rate.

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But we’re now one step closer to normal, and if market expectations are correct, the normalization process will continue apace in the months to come. Here’s what the market is currently pricing in…

  • July FOMC Meeting: 75 bps hike to 2.25%-2.50%.
  • September FOMC Meeting: 50 bps hike to 2.75%-3.00%.
  • November FOMC Meeting: 50 bps hike to 3.25%-3.50%
  • December FOMC Meeting: 25 bps hike to 3.50%-3.75%.

If these projections come to fruition, this will be the highest short-term interest rates we’ve seen since early 2008.

3) Lowest Housing Affordability Since 2007

The 30-year mortgage rate in the US has risen to 5.78%, its highest level since November 2008. Last year it hit an all-time low of 2.65%. The 2.66% spike in mortgage rates over the last 6 months is the largest 6-month increase we’ve seen since 1981.

Meanwhile, the median price of an existing home in the US has moved above $400,000 for the first time, up 44% in the last 2 years.

The combination of higher mortgage rates and higher home prices has led to the lowest housing affordability levels since July 2007.

(Note: this index is using data as of April and mortgage rates have continued to rise since then, making housing even less affordable.)

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4) Demand Destruction

The collapse in housing affordability is destroying demand at a rapid pace.

Two more data points on that front:

  • Existing Home Sales have fallen to their lowest level since June 2020, down 9% over the last year.
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  • Housing starts fell 14% in May, their largest monthly decline since April 2020. They are now down 3% year-over-year.

The breakdown in home sales by price range reveals an interesting dichotomy. While lower priced homes are seeing a sharp decline in sales activity over the past year, higher priced homes are still increasing. Why is that happening? Likely due to the fact that higher inflation and rising mortgage rates disproportionately impact lower income buyers. Does that mean the higher end market is immune to the affordability collapse? Not at all, just that it will take a bit more time to see it’s effect on demand, activity, and prices.

5) High Yield Again

A year ago, junk bond yields hit an all-time low, crossing below 4% for the first time in history. Since then, they have more than doubled to 8.5%, their highest yield since April 2020.

Investment Grade bond yields have been rising as well, moving up to 4.96% last week, their highest levels since October 2009.

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The bad news?

If you’ve been holding these bonds, it’s been a painful adjustment getting there, with junk bonds on pace for their worst year since 2008.

The good news?

Higher yields tend to mean higher future returns on average. That’s the upside of downside.

7) Rising Correlations

The correlation between stocks and bonds over the last two years is the highest we’ve seen since 1995-1997.

Back then, stocks and bonds were moving mostly higher together. This year we’ve seen the opposite, with both stocks and bonds posting double digit losses, leading to the worst year for a 60/40 portfolio since 2008.

8) How Long to New Highs?

The S&P 500 is now down over 24% from its peak in early January, the largest decline since February-March 2020 and longest since 2015-16.

When will it hit a new high again?

Here’s the results of a recent poll I conducted…

If the majority is right, 2023 would be the first year without an all-time high since 2012.

9) Prices Up, Travel Up

There was an average of over 2.3 million US airline travelers per day over the last week, the highest level since the start of the pandemic.

The increase in travel is occurring in spite of the 38% increase in airline fares over the past year, the highest YoY increase on record.

10) Positive Signs on the Inflation Front

Fertilizer prices peaked in late March and have been trending downward since, now at their lowest prices since late January. This is very important given their high correlation with food prices. Hopefully, we’ll see this trend continue.

Used Car prices are down 6% over the last 6 months. In 2020, this was one of the first areas to spike higher, in advance of broader inflationary measures. Hopefully, the current downturn is a leading indicator of lower inflation rates to come.

And that’s it for this week.

Have a great week everyone!


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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. For our full disclosures, click here.

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