The Week in Charts (3/20/24)

By Charlie Bilello

20 Mar 2024

View the video of this post here.

This week’s post is sponsored by YCharts. In their latest Client Communication Survey, YCharts sought insights from nearly 800 financial advisor clients to uncover what clients truly desire from their advisors. The most eye-opening finding?

75% of respondents either switched advisors or contemplated doing so in 2023a stark increase from the 48% recorded in YCharts’ previous survey last year.

Download their findings here and learn how to leverage YCharts to give your overall client satisfaction and retention rates a boost. And mention Charlie Bilello to receive a free trail 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) Active Managers Go All-In

Last October when the S&P 500 was trading at 4,100, active mangers had less than 25% exposure to equities.

Fast forward to today with the S&P 500 over 1,000 points higher and active managers are all-in, moving their equity exposure above 104% (leveraged long).

This is the highest we’ve seen since November 2021.

2) Higher Prices Bring out the Bulls

At the October 2022 Bear Market lows, newsletter Bulls were in short supply, with the Investors Intelligence survey registering just 25%.

Last week the percentage of Bulls moved above 60% for the first time since July 2022.

What changed?

The S&P 500 is over 44% higher, moving from 3,577 to 5,165.

3) Stubborn Inflation = No Fed Cut

The road back to 2% inflation is proving to be a bit more difficult than many assumed.

Overall CPI (3.2%) and Core CPI (3.8%) both came in above expectations, ending any remaining hope for a Fed rate cut in March (odds are only 1% heading into today’s FOMC meeting).

Still, core CPI continues to trend in the right direction with its lowest reading since April 2021. This is being driven in large part by the steady decline in Shelter CPI, which has now moved lower for 11 straight months. At 5.7%, though, it remains elevated, and continues to lag real-time rental data which is showing a 1% decline in the past year. Which means that we’re likely to see lower Shelter CPI in the months to come and lower core inflation as well.

But the headline inflation number may actually rise again in March, with the Cleveland Fed currently forecasting a move up to 3.4%.

What’s driving this?

Rising commodity prices.

Gasoline and Fuel Oil were down year-over-year in February, helping push CPI lower.

But they are now well above year-ago levels, which could push overall CPI higher.

This will likely be enough to keep the Fed on hold again in May, with a less than 10% probability of a cut priced in by markets.

4) The End of Negative Interest Rates

The Bank of Japan hiked rates this week for the first time since 2007, ending the negative interest rate era.

The biggest driver of this shift from the BOJ?

Wage inflation.

Japan’s largest trade union (Rengo) secured an increase of 5.3% in the past year, the biggest jump in over 30 years.

5) The Debt Spiral

More debt + Higher interest rates = Higher interest expenses.

This has been the formula over the past few years.

The US government continues to spend money like a drunken sailor with a budget deficit of $1.8 trillion. Importantly, this is occurring when the economy is still in an expansion and home/stock prices are at record highs. As deficits tend to increase during recessions, one has to wonder what the fiscal picture would look like should we see an economic downturn.

The national debt now stands at over $34.5 trillion, up from $23.5 trillion just four years ago. That’s a 47% increase.

At the same time, interest rates have skyrocketed higher.

The result?

The annual Interest Expense on US Public Debt has surpassed $1 trillion for the first time, more than doubling over the last 3 years.

6) The Bitcoin ETF Boom

Bitcoin crossed above $71,000, $72,000, and $73,000 for the first time last week before pulling back.

Retail investors continued to pile into the newly approved ETFs, with the total assets in the 11 spot Bitcoin ETFs ($60.3 billion) surpassing the assets of the largest Gold ETF ($56.9 billion in $GLD).

7) The Best News in the Inflation Report

The best data point in the CPI report?

Lower food price inflation.

At 1.0% YoY, that was the smallest increase we’ve seen since June 2021, down from a peak of 13.5% in August 2022.

8) Back on the Path to Prosperity

After a record 25 consecutive months of negative real wage growth, wages have now outpaced inflation on a YoY basis for 10 straight months. This is a great sign for the American worker that hopefully continues.

9) Signs of Consumer Weakness?

US Retail Sales increased 0.8% over the last year but after adjusting for higher prices fell 2.3%. These numbers are well below the historical averages of +4.7% nominal and +2.1% real.

Consumer Discretionary stocks ($XLY) are down 0.4% this year versus a 7.6% gain for the S&P 500 ETF (as of 3/15/24). A ratio of the discretionary sector to the broad market peaked in late 2021 and has been trending lower.

10) A Few Interesting Stats

a) Tesla has now been in a drawdown for 861 days, the 2nd longest downturn since its IPO in 2010. It’s currently trading 60% below its November 2021 peak.

b) Over the last 30 years, the purchasing power of the US consumer dollar has been cut in half due to inflation. At the same time, the S&P 500 has gained 840% (7.8% per year) after adjusting for inflation. Why you need to invest, in one chart…

c) The median US new home prices was 6.4x higher than the median US household income in 2022, a record high.

d) According to Vanguard, a record 3.6% of 401(k) holders took early withdrawals last year for financial emergencies.

e) The US Inflation Rate has now been above 3% for 35 consecutive months, the longest period of high inflation since the late 1980s/early 1990s.

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


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