The Week in Charts (2/5/24)

By Charlie Bilello

05 Feb 2024

View the video of this post here.

This week’s post is sponsored by YCharts. If you missed my live show with them on the 4 Most Important Charts to Watch in 2024, view the replay here. Mention Charlie Bilello to receive a free trial and 20% off your YCharts subscription when you initially sign up for the service.

The most important charts and themes in markets and investing

1) A Blowout Jobs Report

It was a blowout jobs report, with nonfarm payrolls coming in at 353,000 for January, well ahead of expectations of 170,000.

This was the 37th consecutive month of jobs growth in the US.

Healthcare once again led all sectors, adding over 100,000 jobs on the month. There is a secular shortage of health care workers that will need to be filled over the coming decade.

The US Unemployment Rate held steady at 3.7% in January, beating expectations for an increase to 3.8%.

The Unemployment Rate has now been below 4% for 24 straight months, the longest streak since the late 1960s.

Perhaps the biggest surprise in the report was the surge in wages. US Average Hourly Earnings increased 4.5% over the last year, coming in well above expectations for a 4.1% rise.

2) Say Goodbye to the March Rate Cut

The combination of the FOMC meeting and the strong-than-expected employment report have pushed back expectations of when the first rate cut will take place.

Only a month ago, those expectations were firmly in March (>70% probability), but today those same odds are below 20% and the market consensus has shifted to May.

In the presser, Powell emphasized once again that before cutting rates they want to “make sure” they “get the job done” (bring inflation back down to 2%). And that they’re not likely to have reached that “level of confidence by the time of the March meeting.”

Entering the year, the markets were pricing in 6 rate cuts with a year-end Fed Funds Rate of 3.9%. Today, that has moved to 5 cuts and a year-end Fed Funds Rate of 4.10%.

As far as the Fed’s balance sheet is concerned, there was no indication in the meeting that Quantitative Tightening (QT) will end anytime soon.

Total assets are now at their lowest level since March 2021, down $1.3 trillion from the peak in April 2022.

3) 2024: A Year of Rate Cuts

2022 was the year of rate hikes across the globe and this year is setting up to be the year of rate cuts. While the Fed/ECB/Bank of England/Bank of Canada are all currently on hold, they are all signaling rate cuts at some point this year. Within Latin America, the rate-cutting cycle began last year and continues today with Peru, Chile, Brazil, and Colombia all cutting rates in January.

4) Money Making Machines

Earnings are pouring in investors are happy with the results thus far, pushing the S&P 500 up to its 7th all-time high of the year.

With 46% of companies reported, S&P 500 Q4 GAAP earnings per share are 16% higher than a year ago, the 4th straight quarter of positive YoY growth and highest growth rate since Q4 2021.

Big tech continues to prove they are money making machines:

  • Google’s revenues increased 13.5% over the last year to a new quarterly high of $86 billion. Net income increased 52% YoY to a record $20.69 billion. Operating profit margins moved up to 27% from 24% a year ago.
  • Microsoft’s revenues increased 17.6% over the last year to a new quarterly high of $62 billion. Net income grew 33% YoY to $21.9 billion (2nd highest quarter ever). Operating profit margins moved up to 43.6% from 38.7% a year ago.
  • Meta’s revenues increased 25% over the last year to new quarterly record of $40 billion. Net income increased 201% YoY to a record $14 billion. Both numbers came in well above expectations. And they initiated a quarterly dividend for the first time ($0.50/share) and upped their share buyback to $50 billion.
  • Meta’s market cap increased by $197 billion last Friday after its blowout earnings report, the largest single-day gain for any company in history. Its stock gained 22% after earnings and is now up 445% from its October 2022 low.
  • Apple’s Q4 revenues increased 2% over the last year to $119.6 billion, the first positive YoY growth rate since Q2 2022. Net income increased 13% year-over-year to $33.9 billion.
  • Here’s a breakdown on revenue and EPS growth for some of the biggest names…

5) The Iron Rule of Financial Markets

Over the last 3 years, Berkshire Hathaway ($BRK.B) has gained 70% while the ARK Innovation Fund ($ARKK) has lost 66%.

And what happened in the 3 years prior to this?

ARK gained 270% while Berkshire was up only 6%.

As John Bogle once said: “Reversion to the mean is the iron rule of the financial markets.”

6) No Recession in Luxury Goods

US Consumer Confidence has moved up to its highest level since December 2021, driven by cooling inflation, strong employment, a stock market back at all-time highs, and the expectation of lower interest rates to come.

And within the Luxury market, confidence is likely even higher.

Exhibit A: Ferrari, who reported record sales ($6.46 billion, +17% YoY) and profits ($1.36 billion, +38% YoY) in 2023.

Since its IPO in 2015, Ferrari’s stock ($RACE) has gained 655% versus a gain of 181% for the S&P 500 ETF ($SPY) and 48% for the MSCI Italy ETF ($EWI).

Its shares are no longer cheap. Ferrari now trades at a premium Price to Sales ratio of 11.4 versus 6.8 for Tesla and 2.6 for the S&P 500.

7) Rising Residential vs. Crumbling Commercial

US home prices continue to hit new highs in November, up 5.5% over the past year.

19 out of 20 cities in the Case-Shiller 20-City Index showed year-over-year gains.

Meanwhile, Commercial Real Estate prices are moving in the opposite direction. In 2023 Offices declined 25%, Apartments fell 12%, and Self-Storage properties were down 11%.

This continues to weigh on Regional Banks ($KRE ETF) which have a high exposure to commercial real estate loans (28.7% of assets).

8) The India/China Divergence

Over the past 3 years the MSCI India ETF ($INDA) is up 31% while the MSCI China ETF ($MCHI) is down 57%.

While China’s economy has been slowing down, India’s growth has accelerated with GDP potentially hitting 8% this year. More and more companies are looking to India as a manufacturing hub, a big shift from a decade ago. One example: Apple, which is targeting manufacturing 25% of its iPhones in India, up from 5-7% currently.

9) Lilly Passes Tesla

Eli Lilly has surpassed Tesla in market cap, becoming the 8th largest company in the S&P 500. Its market value has increased from $100 billion to over $600 billion in less than five years.

What’s driving its surge higher?

Continued optimism over the obesity market. Sales of Lilly’s weight-loss drug (Zepbound) are expected to increase from $3.8 billion in 2024 to over $11 billion in 2028.

10) More Affordable Rents

US Asking Rents fell in January for the 6th month in a row and are down 1% over the last year.

Rents peaked 17 months ago, back in August 2022.

With wages continuing to rise since then, that means rents are becoming increasingly affordable for the average American worker. Another way to illustrate this is in looking at the increase in wages and rents since the start of 2020. We’ve now seen a 21.8% increase in hourly earnings while asking rents have increased 19.2%. In 2021 and 2022, wages weren’t keeping pace with high rental inflation, but as it stands today the opposite is true. This is great news as the single largest line item in most low income households is their monthly rental payment.

11) A Few Interesting Stats

a) For the first time ever, total assets in passive mutual funds and ETFs are higher than the assets in active funds. See video discussion here.

b) The average price of a Super Bowl ticket this year has moved up to a record $9,815, 70% above last year’s average price and 40% above the previous record set in 2021.

c) Global Investment Banking revenue fell to $67 billion in 2023, down 49% from the 2021 peak and at its lowest level since 2012.

d) Funding for US startups fell to $171 billion 2023, 51% lower than the peak in 2021.

e) Apple has bought back $619 billion in stock over the past 10 years, which is greater than the market cap of 492 companies in the S&P 500.

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


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