Look video of this post here.
Over the past 30 years, the purchasing power of the US Consumer Dollar has halved due to inflation. At the same time, the S&P 500 has risen 828% (7.7% annually) AFTER adjusting for inflation. Why you need to invest for the long term, in one chart…
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State of the Market in 10 Charts…
1) Historic Rally
The S&P 500’s 17% gain over the past 8 weeks is the 20th largest 8-week gain for the index since 1950.
What happened in the past after the biggest short-term rallies?
Forward returns are above average (+27% on average in next year vs. +11% in other periods).
2) Unprecedented Revenue Boom
Earnings have become the fuel for vertical progress in the stock market.
S&P 500 earnings per share far exceeded expectations in Q1 (+28% YoY vs +13% forecast) and are now expected to increase by 23% this year.
We’ve never seen earnings growth this high outside of the post-recession recovery. It’s an unprecedented boom driven by massive EPS increases in the big tech sector.
3) Record Technology Dominance
Speaking of Big Tech, the relative strength of the S&P 500 technology sector versus the broad market is at historic highs, above its peak in March 2000.
4) Super Semiconductor
Fueled by surging demand for AI, semiconductor stocks went parabolic with a vertical rise relative to the broader market.
The Semiconductor ETF ($SOXX) is up 163% over the past year vs. 29% gain for S&P 500 ETF ($SPY)
5) Message From the Bond Market
The 30-Year US Treasury yield hit 5.18% this week, its highest close since July 2007.
The Federal Reserve and the Federal Government continue to spin lies about low inflation while the bond markets reveal the truth.
6) Loss of Credibility
62.
As in 62 consecutive months with US inflation above the Fed’s target of 2%.
CPI has now averaged above 4% per year since the beginning of 2020.
The Fed has lost its credibility in fighting inflation.
7) Rising Inflation
A jump in commodity prices will push the CPI above 4% YoY in May and US inflation will likely be above 7% y/y in the second quarter unless the Iran war ends soon.
Memorial Day weekend gas prices were at a 4-year high ($4.56/gallon), up more than 50% since the start of the war.
8) Going on a hike next?
The bond market is now pricing in a Fed rate hike by the end of 2026, a major reversal from expectations at the start of the year (two rate cuts).
9) Angry Consumers Still Spending Money
The University of Michigan’s U.S. consumer sentiment index dates back to 1952.
Never lower than now.
Does that mean US consumers are spending less?
No – at least not yet. Retail sales grew 5.2% over the past year and 1.4% after accounting for price increases.
10) Loss of Purchasing Power
What could derail the consumer-driven US economy?
Loss of purchasing power due to inflation outpacing wages.
After 35 consecutive months of positive YoY real wage growth, this important indicator turned negative for the first time since April 2023.
And that’s all for this week. Thanks for reading!
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.
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