7-Chart Monday (6/6/22)

By Charlie Bilello

06 Jun 2022

Note: Register here for my next markets webinar with YCharts on June 14 (2pm EST). Will be discussing the history of bear markets, the odds of a recession, whether the inflation rate has peaked, and much more.


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

1) 3 Times a Charm?

The S&P 500 has rallied 9.5% from its intraday low on May 20. This is the third attempt at a bottom since the peak on January 4. The two previous bounces failed to hold and would go on to hit lower lows.

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Is this the bottom or just another dead cat bounce? Vote here on Twitter and see the results.

2) Housing Bubble 2.0?

The housing bubble continues to inflate with US home prices hitting a record high for the 38th month in a row.

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Nationally, prices have climbed 20.6% over the last year, the highest rate of increase on record.

Every major metro area in the US has seen a double-digit % increase in home prices over the last year, led by Tampa which is 35% higher. All 20 cities in the 20-city index hit record highs for the 5th month in a row.

The gap between US Home Prices and overall inflation (CPI) has never been wider…

3) When Stocks and Bonds Go Down Together

The first 5 months of 2022 have been the most difficult start to a year on record for a 60/40 portfolio of US stocks and bonds.

The last 8 times the S&P 500 was down in a calendar year, bonds finished the year up, cushioning the blow. With rising inflation and interest rates acting as the proximate cause of the stock market decline, it’s been a very different story thus far in 2022…

4) Earnings Recession?

With first quarter earnings season nearly complete (97% of companies reported), S&P 500 earnings are down 14% versus Q4 2021 and up less than 1% year-over-year.

The big concern is that this trend will continue, with profit margins coming under pressure as companies find it more difficult to pass on higher costs to consumers. On that front, after hitting a record high in Q2 2021 (13.5%), S&P 500 profit margins have moved down to 12%.

5) A Critical Shortage

The baby formula shortage continues to worsen, with 74% of stores across America out-of-stock (a year ago the rate was less than 5%). 10 US states now have out-of-stocks rates that are 90% or higher, including the most populous state (California).

The reasons for the shortage are many, including recalls from the largest producer (Abbott, at >40% of the market), a lack of competition (4 companies control >90% of the market in the US), hoarding, global supply chain issues made worse by the war in Ukraine, and stringent regulations deterring imports (98% of formula sold in the US is made here).

Hopefully, measures taken to increase supply will soon take effect, as 75% of babies use some formula by 6 months of age.

6) Jobs Comeback Continues

Another month, another solid jobs report.

The US has now recovered 21 million out of the 22 million jobs that were lost in March and April of 2020.

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The US Unemployment Rate held steady at 3.6%, the lowest level since the start of the pandemic and only 0.1% above the 50-year low we saw in February 2020 (3.5%).

With employment remaining strong and continued inflationary pressures, the Fed is still expected to hike 50 bps in June and another 50 bps in July. That would bring the Fed Funds Rate up to a range of 1.75%-2.00%.

7) The Greatest Disconnect?

Eurozone inflation has moved up to 8.1%, its highest level ever.

Meanwhile, the ECB is still holding interest rates at negative levels.

This is perhaps the greatest disconnect between easy monetary policy and unabating rising prices that the world has ever seen.

How long can it continue without the ECB losing any remaining credibility? Not much longer. On that front, they are now expected to begin hiking rates in July and end the failed negative interest rate experiment by September.

And that’s it for this week.

Have a great week everyone!


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