Our team looks at a lot of research throughout the day. Here are a handful of charts we think are good summations of investor activity, from a hawkish repricing in rates against cooling wages, to the narrowest market breadth since the dot-com era, record earnings beats, starting bond yields that set up better returns ahead, and households on solid footing. Have a great weekend!
Jake: Interest rates have leaned towards a hawkish Fed fast. Fed funds pricing for October 2027 jumped to 4.82% from roughly 4.0% in late August.
Dave: Yet wages do not appear to be the problem. Average hourly earnings grew 3.02% YoY in September, down from the 2022 cycle high near 5.9% and back within pre-pandemic norms.
Brian: The energy spike that has pushed rates higher does not have the same economic impact it once had. Net petroleum imports sit at -0.6% of GDP, the deepest net exporter position in data back to 1967.
Mike: The real economy is cooling everywhere except AI (or perhaps crowding out everything else). Real construction spending is up 64.5% for data centers over the past year, while manufacturing is down 23.9% and residential is down 9.6%.
Derek: Markets are absorbing higher rates in a very start and stop fashion within their respective asset class. For example, this year’s outperformance of small caps is gone. The Russell 2000 had led the S&P 500 by 13.85% on June 26 and now trails.
Joseph: Within the S&P 500 Index, breadth is the narrowest since the dot-com era. The S&P 500’s 52-week breadth gauge sits near -15%, well below its -1 standard deviation band.
Brett: Part of the reason may be the increased nature of passive investing. NVDA alone sits in 843 ETFs, and 13 trillion-dollar stocks now make up 43% of SPY and 61% of IWF.
Bennett: The dispersion underneath is extreme, with about 140 S&P 500 stocks now carrying a negative six-month beta to the index, roughly double the dot-com peak.
Mark: Yet strong fundamentals of the largest growth companies have pushed value’s P/E discount to growth to 24%, inside its 30% long-term average for the first time since 2018.
Beckham: Fundamentals are holding up well across all markets. A record 89% of US companies beat estimates this season, well above the ~74% historical median.
John: This has pushed corporate profit to 14.9% of GDP, the highest share on record going back to 1947, and well above the 10.1% long-term average.
Ten: The strength in stocks has been met by a mirror image in bonds that have lagged. Rolling returns on the 10-year Treasury are still near the worst on record, with real 5- and 10-year returns around -3% annualized.
John Luke: That does set up better returns ahead. With the 10-year at 5%+ starting yield, the Agg is poised for 5%+ annualized returns over the next seven years.
JG: Munis repriced even faster during Q3. Tax-equivalent spreads on AA GOs widened 123 to 165 bps across the curve last quarter.
Brad: Households are on solid footing. Debt payments take just 11.1% of disposable income versus 15.8% at the 2007 peak.
JD: The S&P 500 is back at all-time highs, and history says that is no reason to wait. Since 1988, investing at a new high returned 82% over five years on average versus 76% on any day.
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