7-Chart Monday (8/8/22)

By Charlie Bilello

08 Aug 2022

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

1) The Greatest Jobs Comeback in History

22 million US jobs were lost in March and April of 2020.

And now, all 22 million and more have been added back, with total payrolls hitting a new high in July.

The greatest jobs comeback in history is finally complete.

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The US Unemployment Rate moved down to 3.5% in July, back to pre-pandemic levels that were lowest we’ve seen since 1969.

2) Filling the Inflationary Gap

US Wages increased 5.2% over the last year while consumer prices (CPI) rose 9.1% and Rents increased more than 12%.

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How are Americans still spending given this enormous inflationary gap?

They’re saving less (savings rate at lowest level since 2009)…

…and borrowing more (consumer credit increasing at fastest pace since 2011).

3) Double Dip Recession?

With data going back to 1947, we’ve never seen a 2-quarter decline in real GDP of this magnitude (-0.63%) without the US being in a recession.

The last 4 times the spread between New Orders and Inventories in the ISM Manufacturing Index was this negative, the US was already in a recession. The 2001, 1990-91, and 1981-82 recessions never had readings this low.

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If we are indeed in a recession, the expansion that began in 2020 would be the shortest since 1980-81 when there was a “double-dip” recession (first recession from January to July 1980, second from July 1981 to November 1982). The prior 4 expansions in the US lasted an average of 103 months (>8 years).

Since 1854, the average US expansion has lasted 41 months and average recession 17 months. But over time, the US economy has matured and become much more diversified and less cyclical. Expansions have averaged 64 months in duration and recessions only 10 months since 1945.

4) Is This Time Different?

The spread between the 10-year and 1-year Treasury yield has moved down to -0.46%, the most inverted we’ve seen since November 2006 and before that September 2000. Both of these time periods preceded US recessions (starting in Jan ’08 & Apr ’01) and Fed rate cuts (starting in Sep ’07 & Jan ’01). Is this time different?

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5) Are Stocks Fairly Valued?

The average year-end P/E ratio for the S&P 500 since 1989 is 19.6. We entered the year 17% above that level (22.9) and are now right there (19.6).

Are stocks fairly valued, then? Yes, but only if you believe earnings aren’t going to decline, which would be typical behavior in a recession. On that front, earnings are already down 7% from their peak in Q4 2021 and the 1% year-over-year growth rate is the slowest we’ve seen since Q4 2020.

6) Still Doubting the Rally

The S&P 500 has now gained over 14% from its low in June, the largest rally attempt we’ve seen this year.

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Market participants remain skeptical, though, with the majority still believing the bear market is not over.

From the low in June, the S&P 500 would need a gain of 32% to reach a new high again. Here’s a look at historical bear markets and how long each took to recover their losses.

As you can see, there’s a lot of variability in there, and it’s been quite some time since investors have experienced a bear market with a recovery time of more than a year (the October 2007-March 2009 bear market took 4 years to recover).

7) The Cure for High Prices

The cure for high prices in the commodities market is often said to be high prices, as it eventually leads to increased production (supply) and reduced demand.

We’re seeing both of these factors influence the price of Gasoline, which is at a 5-month low ($4.05/gallon) and 96 cents below its all-time high from June.

According to the Energy Information Administration (EIA), the total domestic gasoline supply has increased by 7.8 million barrels from the low in June.

And in a recent survey from AAA, 64% of Americans have made changes to their driving/lifestyle in response to higher gas prices, which is translating into lower demand (gas demand dropped from 9.25 million barrels/day to 8.54 million barrels/day last week, which is 1.24 million lower than last year and back to July 2020 levels when COVID-19 restrictions were still in place).

And that’s it for this week.

Have a great week everyone!


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