Very interesting stat from Ned Davis research showing the S&P 500’s annualized gain as a function of quarterly EPS growth.
Turns out, the best periods of stock performance ironically happen when EPS growth is between -10% and -25% as a YOY change. So with the world expecting 2023 to be a low growth or recession year, driving lower EPS growth, the bear cases which seem to be the consensus view currently, could be the best outcome for stocks!
That will make a bear choke on his dinner.
Today, I want to post a handful of interesting charts with global implications. In a world filled with opinions and biases, I’ll try to anchor to data and then we can extrapolate the future with better accuracy.
First, inflation is a global phenomenon, it’s different country to country but it’s present everywhere because bad policy is everywhere. This is man-made inflation folks, very little of this is has NOT been born out of politician intent and/or poor policy and over-reactions to Covid. Charts are from Alpine Macro. Not only does this first chart show you where inflation is but where any recoveries from it could be most robust if/when it eases.
Now, let’s talk savings vs private investment. We have all seen the data from the U.S., savings rates went parabolic during the Covid idiocy and as expected, savings rates have normalized and gone even lower as high inflation causes consumers to eat into their savings to maintain consumption habits. We also know that consumers are already making purchase decisions and have shown a willingness to defer consumption in non-core, non-favorite categories. This will continue and it will take a little time for consumers to build back up their savings once inflation does cool off. For now, I would avoid the 2nd, 3rd, fourth tier brands and categories in a world where we are making real purchase choices. The first chart is the U.S. and then we have Japan with the reverse situation (it’s a cultural thing and they love luxury goods), then we have the Eurozone (falling but still overall high savings), and then China (my goodness it’s not a matter of IF but when they begin their revenge spending). Again, luxury spending looks set to rip back in China at some point. The top Chinese brands should be getting some real snapbacks in spend coming.
Today’s retail sales was strong, e-commerce very strong, nominal numbers always look great in inflationary, higher priced environment. What could hurt spending going forward: continued high food costs, continued high overall inflation across most purchase items. wealth effect deterioration (home prices and stock market woes). Debt usually is not a sign of health so some slowing in spending should be expected. Brand relevancy matters more now than ever.
Lastly, a few great charts from @CharlieBilello on Twitter. U.S. credit card balances have risen sharply, in part because of having alot of consumption capacity and in part because consumption habits haven’t changed but the ability to pay on time has changed. Not an ideal situation and very skewed to the lower income cohorts. The next chart shows the savings rate getting back to 2008 levels. Yes, it’s bear porn but just remember, in 2008 the consumer was much more levered up as a percent of total disposable income and they were flipping houses and acting like it was 1999, I simply do not see that kind of behavior now. Maybe Crypto was the replacement? Remember, the value of crypto was about $3 trillion and so far, >$2 trillion has been shed. Lots of Crypto-Bros in Miami not so happy these days.
Well Jerome continues to be great at the initial press conference then horrible at the Q&A as he gets tripped up easily and continues to talk out of both sides of his mouth. Here’s the summary from Goldman.
As a reminder, heres the Feds game plan. Button your chin strap, he’s a bears best friend right now.
