The Week in Charts (8/30/23)

By Charlie Bilello

30 Aug 2023


Note: view the video of this post on YouTube here.

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The most important charts and themes in markets and investing

1) Declining Purchasing Power

The 30-Year Mortgage Rate in the US has moved up to 7.23%, its highest level since 2001.

Assuming a $3,000 monthly budget, a 2.65% mortgage rate in January 2021 could have bought you a home worth $641k. The same $3,000 budget today with a 7.23% mortgage rate could buy you a home worth $434k.

That’s a $207k (32%) decline in purchasing power.

Surging mortgage rates are crushing affordability, and in turn crushing demand. Mortgage purchase applications in the US have fallen to their lowest levels since 1995.

2) A Dearth of Supply

While the demand for housing is in freefall, so too is supply.

Active listings of homes for sale in the US fell 19.5% over the last year to the lowest level on record (Redfin data going back to 2012).

With fewer homebuyers able to afford homes and fewer homes for sale, activity continues to trend lower. US Existing Home Sales fell 17% over the last year, the 23rd consecutive YoY decline. That’s the longest down streak since 2007-2009.

But with supply falling more than demand, prices have rebounded from the declines we saw in the back half of 2022 and are actually up 1.9% YoY.

At the same time, the unwillingness of homeowners to give up their ultra-low mortgage rates has led to a dearth of existing homes for sale and created a unique dynamic where new homes are an increasingly important part of the housing market. New homes made up 31% of homes for sale in the second quarter of 2023, the highest share of any second quarter on record.

This had been boosting homebuilder sentiment for months, but that trend seems to have ended in August with the Housing Market Index falling for the first time this year. 7+% mortgage rates and record lows in affordability are sharply curbing demand for new homes as well. As a result, homebuilders are increasingly using incentives to bolster sales (55% did so in August, up from 52% in July).

3) Disney in the Doldrums

The drawdown in Disney shares hit 59% last week, which is larger than its max drawdown from 2007-09 (-56%).

A major factor: declining profitability. While Disney’s revenues have nearly tripled since 2004 (from $30 billion to $88 billion), its net income is essentially unchanged (at $2.25 billion), with net profit margin falling from 7.4% down to 2.6%.

4) Prepared to Hike Again

Jerome Powell had this to say at the Fed’s annual Jackson Hole symposium:

“Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

The market is now pricing in an increased probability of another rate hike (to 5.50-5.75%) at the November FOMC meeting, and an overall higher for longer stance.

As a results, short-term yield continue to march higher. The 3-Month Treasury bill yield hit 5.61% last week, its highest level since January 2001.

5) A New Computing Era

Nvidia’s much-anticipated earnings report did not disappoint.

Revenues surged to a record $13.5 billion in the second quarter, up 101% over the prior year. Their revenue projection for Q3 is $16 billion, would would be a 170% YoY increase.

Nvidia’s net income hit a record $6.2 billion in Q2 which was more than 9x higher than a year ago. Gross profit margins moved above 70% for the first time.

As CEO Jensen Huang said on the call, a “new computing era has begun.”

Here’s how Nvidia’s revenue growth compares to other big tech stocks…

And here’s their latest valuation numbers…

The big question for investors: will Nvidia be able to grow into these lofty expectations?

6) A Much More Affordable Tesla

After rising from March through May, used car prices are moving back down, falling for a third straight month in August.

Leading the move lower is Tesla, whose average used car price has moved down to $41,851. That’s over $26k lower than its peak price of $67,915 in June 2022, a 38% decline.

Lower prices are a welcome sign for consumers given the huge spike in financing rates, with the average used car loan moving up to 11%.

7) Long, Long Cycles

Over the last 15 years, the S&P 500 ($SPY) has gained over 360% vs. a 58% increase for the MSCI World ex-US ETF ($ACWX) and just 33% for the Emerging Markets ETF ($EEM). This is the longest cycle of US outperformance that we’ve ever seen.

8) The Other Side of Mania

The 2,850% gain in $AMC shares during the 2021 meme stock mania has now been completely erased after a 98% decline. On the other side of every mania is the weighing machine, which always wins out in the end.

The boring S&P 500 is now ahead since the start of 2021 with a gain of 23% versus a 41% loss for AMC. The S&P 500 had annualized volatility of 18% during this period vs. 237% for AMC, proving once more that not all risk is rewarded.

9) Remote Work and The Rental Gap

Office occupancy in 10 major U.S. cities remains below 50% of pre-covid levels.

The ability for workers to work from home and away from the city has led to increased demand for suburban housing. This, in turn, has led to 8% higher rental growth in suburban areas than cities since March 2020.

These are the cities with the widest gap…

10) A Few Interesting Stats

a) What’s the average age at which people tend to make their smartest financial decisions? 54.

b) Young Americans with high incomes are leaving New York and California and moving to states like Florida and Texas.

c) The average homeowners insurance premium in Florida has more than tripled since 2019, moving from $1,988 to $6,000. Homebuilders are saying these increases are starting to impact sales.

d) Increased polarization in America: 62% of Republicans and 54% of Democrats now view the other party “very unfavorably,” about 3x higher than levels in 1994.

e) For years, jumbo mortgages (>$726k) had lower rates than conforming mortgages but that trend has reversed with jumbo rates now at 7.44% vs. 7.20% for conforming loans. Banks have been pulling back from offering jumbo loans at discounted rates as a way to attract wealthy clients.


And that’s it for this week. Have a great week!

-Charlie

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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. Read our full disclosures here.

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