TOPLEY’S TOP 10 June 03 2024

1. Update Value vs. Growth Stocks

Barrons The Russell 1000 Value Index trades at 15.8 times 12-month forward earnings, a deep discount to its growth counterpart at 27.9 times.

2. Spread Between Largest Nasdaq Names and the Rest.

Spread Between Nasdaq 100 and Rest of Nasdaq Names (Comp)

Chart from Jonathan Baird

3. Software ETF IGV Closes Below 200 Day

IGV-A Series of lower highs and close below 200day after CRM missed earnings

4. Seasonality in Election Year

Marketwatch –  Clissold, in a note earlier this week, observed that since 1950 the S&P 500 has risen 77.8% of the time from April 30 to Oct. 31 in election years, that’s the strongest of the four years in the presidential election cycle. The 3.3% median gain seen over that stretch in election years is the second highest (see table below).

5. American Exceptionalism Last 5 Years.

Chartr Blog USA #1 – Another reason economists might have a rosier view of the American economy than the general public? A global perspective. Indeed, the US has seen real GDP grow by nearly 9% since the pandemic began, by far the strongest of any of its G7 peers, which have averaged only 2.7%. Canada’s economy has been the next best in the group of seven, growing 5%.

The great American consumer.

Despite sky-high interest rates and inflation, good old-fashioned consumer spending – the biggest slice of the US economic pie – has been nearly unstoppable for more than 3 years, with people continuing to splurge. However, very recently, there have been signs that some consumers might be starting to crack. Retail sales growth halted abruptly in April, and recent earnings from Target and Walmart suggest that lower-income consumers are starting to struggle, with Fortune reporting “a shift from spending on wants to needs”, with similar sentiments shared by executives at other consumer companies.

In recent years, when consumers felt the pinch, many had pandemic-era savings to dip into thanks to stimulus checks, enhanced unemployment benefits, tax credits, and the fact that there wasn’t much to spend your money on during lockdown. This influx of cash bolstered our bank accounts significantly: one economic model estimates that America banked excess savings worth a staggering ~9% of nominal GDP during 2021.

6. Josh Brown Ritholtz Wealth-Wide Dispersion in Retail Stocks.

7. Cyber Crime Losses

8. Solar and battery storage to make up 81% of new U.S. electric-generating capacity in 2024.

Data source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory, December 2023

9. American Home Equity $32 Trillion…Added $12 T Since 2019.

by Ben Carlson America’s Piggie Banks Are Full The pandemic housing boom means Americans have more home equity than ever.

Households have added roughly $12 trillion in home equity since the end of 2019:

10. Classroom vs. Real Life-Farnam Street Blog

There is a certain category of decisions that work well in the classroom but not in real life. I call these chalkboard decisions. These decisions tease us because the math always seems correct. 

The problem is that most decisions are less about the math and more about judgment. The math always points to the optimal immediate decision, which is rarely the best long-term decision. 

Consider paying off your mortgage. With 2% interest rates, the spreadsheet will tell you it doesn’t make sense to pay off your mortgage. Instead, put the money you would have used to pay off your house in the stock market. Assuming an 8% return, you’d be much better off. 

The math in chalkboard decisions is irrefutable. And yet, the best decisions are often based on positioning yourself for things you can’t see. 

What if we have a pandemic? What if the stock market drops 20% or 30%? What if mortgage rates rise 10%? Can you handle these events with equanimity, or will circumstances force you to do something you don’t want to do? 

I see the same thing in business all the time. The math says lever up, reduce inventory, pay your employees as little as possible, charge your customers as much as possible, and take advantage of the weakness of your suppliers. You don’t need to look far to see companies who take this approach. In the short term, these decisions almost always seem optimal. In the long term, they almost always fail. 

If it helps to visualize chalkboard decisions, imagine standing at the base of a 2000m mountain with two paths in front of you. You can only see the next 100m of each, and one path looks easier. If you only consider what you can see, you’ll choose the easier path. Only after you walk the first bit do you realize that choosing the easiest visible path leads to a cliff and doesn’t take you where you want to go. 

Our ability to predict the future is never as certain in the real world as in the classroom. No matter how compelling the math, the best chalkboard decision might not be the best overall move.