“The stock market is a device for transferring money from the impatient to the patient.”
— Warren Buffett
Friday Are-we-there-yet Charts
I had a trading desk colleague that used to say the real risk-free asset is not cash or government bonds, but equities.
And I kind of agree, if your time horizon is long enough.
So here’s a prediction: The S&P 500 will make a new all-time high — but probably not anytime soon. And certainly not if Chair Powell has any say in the matter.
The Fed has been wanting asset prices lower, and the market has started to oblige.
How much further do we have to go?
Like a kid on a summer-vacation car trip, I feel like incessantly asking, “are we there yet? Are we there yet?”
Despite this week’s carnage, I’m confident Powell’s answer would still be “NO” (immediately followed by “STOP ASKING”).
But maybe we’re getting close? Let’s see if some charts can help us map it out.
Today’s data suggest we’re almost there in terms of employment:
The US added 428,000 jobs in April, edging employment back toward pre-pandemic levels. We always get there, eventually, but the chart above is a reminder of how different this recovery has been to any other.
The growth of money supply is also getting back toward normal:
But maybe not fast enough? Scott Grannis notes on his blog that if M2 continues to grow at 6%, with savings rates and GDP growth back at trend, he’d expect inflation to average 10% over the next three years. 10%! Yikes.
The Fed’s problem is that US consumers are getting raises and spending more:
That, too, seems to be normalizing, however, with wage growth slowing for service sector workers (green line), who have been seeing the fastest gains (fortunately).
Wage growth is a high-class problem that only the US seems to have. In Europe, they're all about energy prices:
EU energy prices were up 86.7% in April vs. a year prior. 86.7%! Double yikes.
Here’s another high-class problem to have: worrying about the stock market.
Especially when the S&P 500 is basically unchanged vs. one year ago. Feels worse than that, right?
People are nonetheless worried:
Goldman’s sentiment indicator for US equities has matched the lows from 2009. When people are this gloomy, we’re usually pretty close to our bear-market destination.
On the other hand…
…the AAII survey suggests no real selling has happened yet. The dotcom and GFC crashes did not end until people had about as much cash (purple line) as stocks (orange line).
Thanks for the charts, but what’s it all mean? Are we there yet?