US economy and stock market analysis: Chart of the week archives

Gold rises above and falls below multiyear high

The price of gold had surged over $1,600 in the wake of tensions surrounding the assassination of a top Iranian military commander. As geopolitical tensions have subsided, gold has dropped back near $1,540 per ounce. However, that still represents a huge rally from a multiyear nadir of $1,100.

Source: Bloomberg

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International demand, central banks helped bonds last year

The more than $11 trillion in negative-yielding debt globally helped drive appetite for high-quality income-producing assets. This factor—in addition to several rate cuts by global central banks—boosted bond returns in 2019, and some investors believe demand will continue to drive bonds in 2020. Of note, dealers sold more bonds to non-US investors last year than they bought.

Source: Bloomberg, Bank of America, Trace. Data represents bonds maturing in 1 year or more, through December 13. Negative numbers indicate foreign buying.

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Battery technology, supply issues help propel nickel

While most base metals—including copper, aluminum, lead, zinc, and tin—had a tough year in 2019, nickel soared. As a key input for batteries and stainless steel, nickel rose more than 30% last year, easily outpacing metal counterparts that suffered under the weight of trade tensions and other factors. One key driver sending nickel prices higher occurred in the 3rd quarter, when Indonesia, which is a major producer of nickel, announced an unexpected early ban on raw-ore exports.

Source: LME, Bloomberg, as of December 31, 2019.

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A good sign for 2020?

The S&P 500 has gained roughly 25% year to date, as of mid-December. That may be good news for next year. Since 1950, the S&P 500 has gained more than 20% annually 18 times, and has gained an average of 11% in the following year. Only 3 losses were recorded in the years after a 20% or more annual gain.

Source: Bloomberg, MKM Partners, as of December 15, 2019.

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Jobs picture improves again

The US jobless rate fell to 3.5%, matching the lowest level since 1969, after adding 266,000 workers in November. Average hourly earnings climbed 3.1% from a year earlier, topping projections, and the prior month was revised higher as well. This year-over-year average wage growth in November helped offset some of what has been a declining growth trend for worker earnings since February.

Source: Bloomberg

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Exports to China vary by US state

While total US exports to China have been impacted since the unofficial beginning of the US-China trade war in early 2018, the effect has been uneven across the United States. Looking just at data from September 2018 to September 2019, most states experienced a decline ranging from 0% to 40% for all merchandise exported to China—with a handful actually seeing an increase. During this period, total US exports to China plunged 15% to $78.8 billion.

Source: US Commerce Department, US-China Business Council

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Homebuyers getting older

Rising property prices and record levels of student debt have contributed to the median age of first-time US homebuyers maturing to 33, according to the National Association of Realtors. That's the oldest age for these types of buyers based on data going back to 1981. The median age of all buyers, 47, is also at a record, after having increased for the third straight year.

Source: National Association of Realtors. Survey conducted almost every other year prior to 2002. No data for 1983 and 1999.

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Potential tariff impact

Global markets continue to be driven in large part by evolving trade wars, and rightly so. One model suggests the true impact has yet to be felt, and could ratchet up over the next few years—with damaging effects to global GDP—if a certain level of tariffs is implemented and maintained.

Souce: Bloomberg Economics, NiGEM, as of November 2019.

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IMF lowers growth forecast

The International Monetary Fund (IMF) cut their 2019 global growth forecast to 3%, matching the weakest performance since 2009. The IMF cites trade wars as a primary factor undermining the worldwide expansion. However, the IMF expects growth to rebound a bit in 2020.

Source: International Monetary Fund world ecomomic outlook, as of November 2019.

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Foreign flood into China

Overseas investors now hold more than $500 billion in Chinese stocks and bonds, according to data from the People’s Bank of China. That is nearly a 5-fold increase over the past 5 years, as China continues to open up its financial sector at a rapid pace.

Source: People's Bank of China

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Soybeans in the crosshairs

The soybean market has been particularly impacted by the US-China trade war. While the year isn't done yet, annual Chinese imports of US soybeans are on pace to be cut in half, according to data from the China Customs General Administration. Since peaking in 2012, soybean prices have also been cut in half through late October 2019.

Source: China Customs General Administration. 2018-19 data is only for the first 11 months.

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Does this explain S&P 500's stall?

The S&P 500 Index's earnings-per-share growth has been inching higher for a year, compared with the more dramatic rising trend in prior years. More recently, 3rd quarter earnings growth fell 3.8% from the year ago period. This may help explain why stocks appear to have stalled out at current levels.

Source: Bloomberg

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Lower rates help home sales

As investors grapple with recent rate cuts by the Federal Reserve, new US home sales rose at a faster pace than forecast in August, to a 713,000 annualized pace (a 7.1% increase). Of note, the decrease in mortgage rates boosted demand for higher-priced homes in particular.

Source: Commerce Department, Bloomberg, as of October 13, 2019. The gray area indicates a recession period. SAAR (seasonally adjusted annual rate).

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Saudi oil powers China

Less than a month after the attack on facilities in Saudi Arabia that knocked out 5.7 million barrels a day of output capacity, oil prices have stabilized in the wake of significant price volatility. The chart below shows how dependent upon Saudi Arabia several countries are—particularly China.

Source: Bloomberg Tanker Tracking.

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Income keeps dropping

While some nominal statistics are showing modest growth in workers' income, the reality is that real household income continues to fall. Analysis from the Economic Policy Institute reveals the decline in real median household income growth has been significant over the last 4 years. Assessing real income is superior to nominal income because real income factors in inflation.

Source: EPI analysis of the Annual Social and Economic Supplement of the Current Population Survey, Historical Income Table H-5

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How optimistic are Americans?

Generally speaking, many Americans are optimistic about their finances. Respondents in a recent Bloomberg report on consumer comfort showed a gauge of sentiment about personal finances advanced to the second-highest level since 2000.

Source: Langer Associates, Bloomberg

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Negative-yield debt hits record

More than 30% of the world's investment-grade bonds now have negative yields—the highest percentage ever. If held to maturity, bonds that are worth less, not more, erode returns for pensioners, insurers, and savers. However, they're still in demand as looser monetary policy drives up the price of more conservative sovereign and corporate debt—with the sub-zero stockpile of bonds hitting a $17 trillion record recently.

Source: Bloomberg

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Volatility rises

Stock market volatility, while still relatively low, increased noticeably in August. The Chicago Board Options Exchange Volatility Index, commonly known as the "VIX" or "fear index," traded above 2019's average for nearly the entire month of August. September is historically the most volatile month of the year.

Source: Bloomberg, CBOE.

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Oil prices have been flat

Last month, the US oil market had its smallest monthly price fluctuation since September 1991. Counterbalancing supply and demand pressures led West Texas Intermediate (WTI) to close July up just 0.2%. Prices have continued to remain relatively flat in August.

Source: CME Group, as of August 25, 2019.

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US dominates global markets

US companies set a 16-year high as they now account for about 56% of the total market value of the MSCI All-Country World Index. Their weight in the index, consisting of companies in developed and emerging markets, was the highest since August 2003.

Source: Bloomberg, Goldman Sachs, Driehaus, as of August 17, 2019.

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Growth stocks and banks

Growth stocks outperforming value has become a longer-term trend. In a relatively low interest-rate climate, the same could be said about the S&P 500 Index versus banks. Compared to the overall stock market, lenders are broadly having a tough time growing the bottom line, due in large part to rate cuts and continued declines in yields.

Source: Bloomberg

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Industrials take hit amid trade war

At the outset of the US trade war with China, the price-to-earnings (P/E) ratio of the S&P 500 Industrials Index was roughly equal to that of the S&P 500. Recently, they have diverged, with industrial companies down about 3.4% since January 2018. That compares with the S&P 500’s 5.3% gain.

Source: Bloomberg, as of July 31, 2019.

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Stores still rule back to school

Total US spending on textbooks, clothes, and school supplies continues to rise. While online spending is growing, in-store purchases still account for nearly 90% of retail spending during the summer season, according to data from eMarketer.

Source: Bloomberg, eMarketer.

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A warning sign for stocks?

The Citigroup US Economic Surprise Index suggests that weakening US economic reports could eventually catch up with stocks, according to analysis from Robert W. Baird & Company. Periods when this indicator was higher than minus 16 account for all of the S&P 500 Index's gains in the past 10 years. Of note, Citigroup's index was below negative 16 from February 15 up through today (yet the S&P 500 is up roughly 5% during that time).

Source: Bloomberg

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Earnings forecast lowered

Consensus second quarter estimates for S&P 500 companies has declined 2.5%, according to Bloomberg. That is slightly better than the average cut of 3.4% since 2010. While that stopped a 4-quarter streak of anlysts' outlook worsening (capped off by a 7.9 decrease during the first quarter), comparables may be increasingly relevant as the short-term boost of the US tax cut fades further out of view.

Source: Bloomberg

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The US-China trade war

The outlook for US companies doing business with China remains murky. The ratio between Morgan Stanley’s China Trade Sensitive Basket and the S&P 500 Index has dropped to the lowest since August 2017.

Source: Morgan Stanley

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China trade war and US debt

China's ownership of US bonds, notes, and bills continues to slide. Its share of all foreign-held US debt fell for the 9th straight month in March to the lowest level since June 2006. However, China still remains the biggest creditor to the US, with holdings of $1.12 trillion, followed by Japan at $1.08 trillion.

Source: US Treasury Department

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Expensive stocks not to be shunned

Owning the most expensive US stocks by one valuation gauge has been a rewarding strategy during the current bull market, according to one analysis. Looking at stocks in the Russell 1000 Index that have traded at more than 10 times revenue, shares with the highest price-sales ratios surpassed the Russell 1000's total return, including dividends, for the 1-, 3-, 5-, and 10-year periods ending March 31.

Source: Alpha Architect, Bloomberg. Periods ended March 31. High price-sales stocks were revised monthly.

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Productivity reaches fastest pace in 4 years

Nonfarm labor productivity, or output per hour, climbed at a 3.6% annualized pace in the first quarter. That's the fastest gain since 2014. The faster rate of productivity helped push down unit labor costs, which fell at a 0.9% rate in the period. This suggests the economy can grow at a faster pace without spurring a big jump in inflation.

Source: Bureau of Labor Statistics

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IPOs beating the market

The Renaissance IPO Index, which consists of initial public offerings within the past 2 years, has beaten the S&P 500 year to date. While there is still more than half a year to go in 2019, it is worth noting that the IPO index underperformed the S&P 500 in 4 of the past 5 years.

Source: Bloomberg

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Chart Title	Date
Gold rises above and falls below multiyear high	01/16/2020
International demand, central banks helped bonds last year	01/09/2020
Battery technology, supply issues help propel nickel	01/02/2020
A good sign for 2020?	12/19/2019
Jobs picture improves again	12/12/2019
Exports to China vary by US state	12/05/2019
Homebuyers getting older	11/27/2019
Potential tariff impact	11/22/2019
IMF lowers growth forecast	11/15/2019
Foreign flood into China	11/07/2019
Soybeans in the crosshairs	10/31/2019
Does this explain S&P 500's stall?	10/24/2019
Lower rates help home sales	10/17/2019
Saudi oil powers China	10/03/2019
Income keeps dropping	09/26/2019
How optimistic are Americans?	09/19/2019
Negative-yield debt hits record	09/12/2019
Volatility rises	09/05/2019
Oil prices have been flat	08/29/2019
US dominates global markets	08/22/2019
Industrials take hit amid trade war	08/15/2019
Growth stocks and banks	08/08/2019
Stores still rule back to school	08/01/2019
A warning sign for stocks?	07/25/2019
Earnings forecast lowered	07/19/2019
The US-China trade war	07/12/2019
China trade war and US debt	07/05/2019
Expensive stocks not to be shunned	06/27/2019
Productivity reaches fastest pace in 4 years	06/20/2019
IPOs beating the market	06/06/2019

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