7-Chart Sunday (1/30/22)

By Charlie Bilello

30 Jan 2022

Click Here for a replay of my recent webinar on the free money effect, the high growth crash, and the beginning of the end of easy money.


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

1) Fear is Back

It’s been a while since we’ve seen even a hint of fear in the stock market. But with the correction hitting 12% on Monday, some signs of short-term panic emerged.

At one point, the Volatility Index ($VIX) spiked to 38.94, its highest level since October 2020.

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The rubber band was getting stretched – and as it’s prone to do – it snapped back in dramatic fashion. From the low on Monday to the close, the S&P 500 would rally 4.44%, the largest intraday rally we’ve seen since March 26, 2020.

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The back-and-forth volatility continued over the next four days, with the S&P 500 actually managing to post a gain of 0.77% on the week.

But the psychological damage for many investors had already been done, with Bears outnumbering Bulls by 30% in the latest AAII sentiment poll (more fear than 98% of historical data points).

In the past, this level of fear has often been a bullish contrarian indicator, with above-average forward returns (see table below). Often, however, is far from always. In late 2007 and throughout 2008, similar bearish sentiment extremes were hit and the market continued to fall.

2) Bond Market Blues

The stock market is not the only market off to a rough start this year.

US Bonds (Bloomberg Barclays Agg Index) are now down 2% on the year and in the midst of their longest correction ever at 538 days (note: daily data goes back to 1996).

The peak in bonds back in August 2020 coincided with the all-time closing low in yields, with the 10-Year Treasury hitting 0.52%. The move back to 1.78% today has been painful for bond investors, with more pain to come should yields continue to rise.

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And rise they will, at least on the short end of the curve, which is entirely controlled by the Federal Reserve. At the FOMC meeting last week, the Fed affirmed their intention to start hiking rates in March and ending their purchases of bonds (QE). The market is now pricing in a greater than even chance of 5 rate hikes in 2022.

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3) And … It’s Gone

Rising interest rates and the prospect of a more hawkish Fed continues to hit high growth stocks harder than any other segment of the market.

The leading representative of high growth in the fund world: the ARK Innovation ETF ($ARKK), which is now underperforming the Nasdaq 100 ($QQQ) since inception.

Why is that notable?

Because only a year ago it was outperforming by close to 500%.

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What happened?

A sentiment shift for the ages. The median company in ARK’s portfolio (top 25 holdings) went from trading at 11.1x sales in January 2020 to 33.3x sales at its peak in February 2021 to 8.5x sales today.

4) The Band is Back Together

For the first time since 2005, every city in the Case-Shiller 20-City Home Price Index is at an all-time high.

The last holdout? Chicago, which finally surpassed its 2007 peak.

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US Home Prices overall are up 19% over the past year, which is the highest annual rate of increase in recent history.

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5) You Call That a Bubble?

The rapid rise in home prices has many Americans worried about another bubble, and rightfully so.

But if the US Housing market is bubbly, what would you call Australia, Canada, and the UK? Home price appreciation in all 3 countries have far outpaced the US since 2000.

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And then there’s Japan, whose housing market peaked over 30 years ago in a bubble of epic proportions.

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6) Mo Money, Mo Problems?

Speaking of bubbles, the final data on US Money Supply from 2021 is in, showing a 14% increase. With data going back to 1959, that’s the 2nd largest increase we’ve ever seen, trailing only the 25% flood of new money in 2020.

As has been the case throughout history, huge increases in the money supply are viewed initially as only positive, resulting in an economic boom, stock market boom, and housing market boom. The 29% increase in the S&P 500 last year and 5.5% increase in real GDP (highest since 1984) are a testament to that, as well as the aforementioned 19% increase in home prices.

It’s only with a lag that the negative consequences are seen, an inflationary spiral and a decline in purchasing power. We’re just starting to experience those effects with the PCE price index rising each and every month in 2021 to its highest level since 1982.

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7) That’s a Lot of iPhones

The world’s largest company (Apple) reported another record quarter in sales ($123.9 billion) and profits ($34.6 billion) this past week. For the full year, revenues grew 29% to $378 billion and net income grew 58% to $101 billion. That’s a lot of iPhones.

Trading at 27x earnings, is Apple overvalued, fairly valued, or undervalued?

I asked that question on Twitter and here are the results…


Have a great week everyone!


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