The Week in Charts (4/15/24)

By Charlie Bilello

15 Apr 2024

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The most important charts and themes in markets and investing

1) Inflation Heating Up

Inflation is moving in the wrong direction.

Overall US CPI moved up to 3.48% YoY in March from 3.15% in February and 3.09% in January. This was the highest headline reading since last September.

US Core CPI (ex-Food/Energy) moved up to 3.80% YoY from 3.76% in February, the first uptick in core inflation since March 2023.

Why did US CPI increase from 3.1% in January to 3.5% in March?

Higher rates of inflation in Transportation, Electricity, Medical Care, Gasoline, Apparel, Used Cars, Gas Utilities, and Fuel Oil.

Falling gasoline prices helped push CPI lower for most of 2023, but we’re starting to see the opposite impact with gas prices now higher than year-ago levels. US gas prices have increased 16% so far this year, moving to their highest level since last October ($3.71/gallon national average).

Transportation costs remain stubbornly high (+10.7% over last year), with skyrocketing auto insurance rates being a major contributing factor. The 22% increase over the last year is the biggest 1-year spike since 1976.

The US Inflation Rate has now been above 3% for 36 consecutive months, the longest period of high inflation since the late 1980s/early 1990s.

The largest single component of CPI now been above 5% for 24 consecutive months, the longest period of elevated housing inflation since the early 1980s.

2) See You In September

At the start of the year, the bond market was pricing in 6-7 Fed rate cuts in 2024 with 25 bps cuts in March, May, June, and July.

Today, after the hotter-than-expected inflation report, the market is pricing in just 2 rate cuts with the first cut not occurring until September.

3) The Higher For Longer Impact

With the Fed expected to remain “higher for longer,” here are just a few of the consequences…

a) Credit card rates, which hit another record high of 21.6% in the first quarter, will likely remain elevated.

b) The interest rate on 48-month new car loans, which have moved up to 8.57% (highest since 2001), will likely remain elevated.

c) The Interest Expense on US Public Debt, which hit a record $1.02 trillion over the last 12 months, will likely continue to increase.

d) Mortgage rates, which are moving back towards 7%, will likely remain elevated.

e) The 10-year Treasury yield, which had moved all the way down to 3.79% last December in anticipation of 6-7 rate cuts, is now back up to 4.63% (highest level in 5 months).

e) Savers will continue to earn yields of over 5% as long as the Fed doesn’t cut, but only if they shop around. The national average rate on savings accounts is still just 0.47%. You can easily bump this up to 5% or more by moving into money market funds, high yield savings accounts, or by simply buying Treasury bills directly (which has the additional benefit of not being taxable at the state level).

4) The Start of a Correction?

The S&P 500 has closed above its 50-day moving average for 162 consecutive days, the 10th longest streak since 1950. It’s very rare to experience such a smooth ride higher and we haven’t seen a run like this since 2010-11.

If the year ended today, the S&P 500’s maximum drawdown of -2.49% would still be the smallest of any year in history. 1995 currently holds the full-year record with a max drawdown of -2.53%.

But volatility is starting to rise, and the S&P 500 fell 1.5% last Friday, its 5th daily decline of 1% or more this year.

So is this the start of a correction?

Given the backdrop of higher inflation, higher interest rates, and the recent extremes in bullish sentiment, it certainly wouldn’t be surprising. The average year has 3-4 pullbacks of 5% or more. A similar pullback here would be perfectly normal. What would be much more abnormal is if a correction never comes in 2024.

5) The Most Absurd Number in CPI?

According to the US Government, the cost of health insurance in the US has declined 15% over the last year and is 3% lower than it was 5 years ago.

How is that possible when we know that the cost of health insurance is certainly much higher today than five years ago?

The government is not using actual premium data to determine the cost of health insurance, but instead using changes in the retained earnings of health insurers. So when their retained earnings decline as they have over the past few years, the government says that the cost of health insurance has declined as well.

The most absurd number in CPI? Absolutely.

6) Correlation Returns

The correlation between US stocks and bonds over the last 3 years is the highest on record at 0.69.

But even though stocks and bonds have been moving in tandem more than ever before, correlations don’t equal returns.

Case in point: US stocks ($SPY ETF) have gained 29% over the last 3 years versus a 10% decline for US Bonds ($AGG ETF). Simply put: rising interest rates have hurt bonds much more than stocks.

7) Reversion to the Meme

One of the consequences of a more normal monetary policy regime has been the reversion to the mean in “meme stocks.” The rampant speculation that was prevalent in 2021 during 0% rates/QE is nowhere to be found, with many of the most popular meme stocks now down over 90% from their highs.

Among these is Virgin Galactic ($SPCE), the space tourism company that was losing hundreds of millions of dollars in 2021 and is losing even more money today (-$502 million in 2023). The only difference is that investors today seem to care about that fact much more.

8) Fast Food Isn’t Cheap Anymore

According to FinanceBuzz, the average price of 10 menu items at McDonald’s has doubled over the last decade, rising more than any other major fast food company. The reported inflation rate over the past 10 years: 31%.

Here are the 10 McDonald’s menu items and their price increases over the last 10 years…

9) Rising Dollar, Rising Gold

Gold and the US Dollar historically have a negative correlation, but that doesn’t mean they never move in the same direction. This year is a perfect illustration of that, with Gold ($GLD) up 13.9% and the US Dollar ($UUP ETF) up 6.5%.

What’s driving this synchronous action?

Gold is rising on the narrative of stickier inflation, and the US Dollar is benefitting from that narrative as well given the rising expectation for US interest rates relative to the rest of the world.

10) A Few Interesting Stats…

a) The Median US Household Net Worth by Generation…

  • Boomer: $411k
  • Silent: $310k
  • Gen X: $234k
  • Millennial: $97k
  • Gen Z: $13k

b) The hottest job markets in America (WSJ rankings)…

c) Total Cash Net of Debt…

  • Google $GOOGL: $98 billion
  • Apple $AAPL: $65 billion
  • Meta $META: $47 billion
  • Amazon $AMZN: $28 billion
  • Microsoft $MSFT: $20 billion
  • Nvidia $NVDA: $16 billion

d) Are you fit for your age? Here’s one way to measure that using push-ups…

e) At $116 billion, Apple leads all S&P 500 companies in operating cash flows over the last 12 months. In 2nd and 3rd place: Microsoft ($103 billion) and Google ($102 billion).

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


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