7-Chart Tuesday (4/12/22)

By Charlie Bilello

12 Apr 2022

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

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

1) The Inflationary Spiral Continues

The US Inflation Rate rose to 8.5% in March, its highest level since December 1981.

The big difference between then and now?

Fed Policy.

In December 1981, the Fed Funds Rate was at 13%. Today’s it’s at 0.33%.

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Where are prices rising? Everywhere. Here’s the breakdown in the latest CPI report

Importantly, all of the growth in US wages since the start of the borrowing/printing/spending binge in February 2020 (+11%) has now been erased after adjusting for inflation…

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How did that happen? For 12 consecutive months, rising wages have failed to keep pace with rising prices, a sharp decline in prosperity for the average American worker.


2) Here Come the 50 bps Hikes

The Fed is now woefully behind the curve with a Real Fed Funds rate of -8.2%, the lowest in US history with the exception of a single month in 1974.

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Initially, the Fed was projecting 25 bps rate hikes at every meeting through year end, but hawkish commentary in recent weeks coupled by the continued move higher in inflation has shifted market expectations.

Fed Funds Futures are now pricing a 50 bps hike in May and another 50 bps hike in June. If that happens, it would bring the Fed Funds Rate up to a rage of 1.25%-1.50%. Still incredibly easy policy given the inflation rate, but a big shift in a short period of time.

3) The Longest Bond Bear Market in History

The continued move higher in interest rates has had a devastating effect on bonds which had no cushion after starting from all-time yield lows in 2020. This is now the longest US bond market drawdown in history (20 months and counting) and the largest (-7.6%) since 1981 (note: using monthly total return data).

In 1981, the 10-year yield was at 15.8% and the bond market hit a new high just 2 months after bottoming. Today the 10-year is at 2.7%, and likely to take much longer to recover.


The good news for new entrants to the bond market? Future returns are likely to be higher than the recent past as the single best predictor of future returns are starting yields.

The bad news? While yields are much higher today than they were two years ago we’re still in the far right decile of that chart. That means investors should continue to temper their return expectations from bonds (3% would be a good 7-year annualized return from here, before adjusting for inflation).

4) The Greatest Disconnect?

Eurozone inflation has moved up to 7.5%, its highest level in history. Meanwhile, the ECB is still holding interest rates at negative levels with no plans to normalize. This is perhaps the greatest disconnect between easy monetary policy and rapidly rising prices that the world has ever seen.


5) Is a Housing Correction Coming?

The 30-year mortgage rate in the US has spike to 4.72%, its highest level since December 2018. Just last year it hit an all-time low of 2.65%.

The 0.96% increase in mortgage rates over the last 5 weeks is the largest 5-week spike we’ve seen since May 1987.


The rise in rates should soon start to impact demand (affordability has plummeted), and cool the red-hot housing market. That already seems to be the expectation of equity investors. After a stimulus-driven boom in 2020 and 2021, Home Construction stocks ($ITB ETF) are having a difficult time of late, down over 30% from their high.

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6) The Best Performing Stocks

Amazon ($AMZN) is best performing company in the S&P 500 over the last 30 years.

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Here are the top performers over the last 5, 10, 15, and 20 years…


7) New Hospitalization Low

Covid-19 hospitalizations in the US have fallen to their lowest levels since the start of the pandemic, down over 90% from their peak in January.

And that’s it for this week.

Have a great week everyone and Happy Easter/Passover!


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