Credit Card Pain, "Excess Savings" (And Inflation) Wane, The Fed's Set to Setup Rate Cuts

Credit Card Pain

While those who don’t see recession looming (looking out 6-12 months) will cite the fact that the upper half of income earners are still spending quite healthily, and that their spending represents the lion’s share of US consumption, we should nevertheless take the latest credit data seriously.

I.e., while the below may indeed reflect the pain among those not in the upper 50% of income earners, it nevertheless speaks to the evolving state of the economy, and, in our view, should be viewed as a serious warning sign:

'Technical' Rally Right on Cue! GDP Pops (some history), Ex-Fedhead Panicking, Global Economy Surprising (in a not-good way), yada yada

Well, alas, technical difficulties did not allow me to post this week's video commentary, so I'll just give you the highlights.

But first, a quote:

“Whoever wishes to foresee the future must consult the past.”

Niccolò Machiavell

Starting with the technicals, here's the 1-year daily chart for the S&P 500... Like I said last week, we'll see some nice rallies off of technical support.

Context! Dangerously Giddy While Economic Sentiment Wanes... No Top Yet, Although... and Conflicting Narratives All Priced In!

Update: The following content was posted yesterday for today's distribution... In the meantime, here's an entry to our internal log this morning:

Google (Alphabet) stock is getting slammed this morning on earnings comments that very much jibe with our concerns over the AI hype… They implied that patience will be needed when it comes to justifying the massive spending they and others are devoting to AI.

Like I said yesterday:

“With regard to AI, so far it’s all about companies competing to see who can spend the most on it, while seeing virtually zero offsetting profitability gains yet emerging… They’ll likely come, but there’s little evidence that said profitability will emerge to offset the bottom line hits – which tend to roil perfectly-priced markets – that’ll show up amid the heavy AI spenders in coming quarterly earnings reports.”

Context

I can't emphasize enough how all the hoopla over all-time highs in US stocks needs some serious context.

Essentially, the extent to which a mere handful of stocks have done all the lifting is historic (and, by the way, historically-unhealthy).

Here's from the 2021 peak, nearly 3 years ago... Note that while the S&P 500 and Nasdaq 100 cap-weighted indices (white and purple) have done okay since then (well, actually, since last December), the same stocks equal-weighted have produced just barely positive results for the S&P (green) and slightly negative results for the Nasdaq (yellow):

Adjust those for inflation and of course it's much worse.

Now, could, as some expect, the many ultimately catch up to the few, and thus extend the cap-weighted indices up trend far into the future?

Absolutely!

Should we, in the present late-cycle setup, bet the farm on it?

Absolutely not!

Overboughtness + Extreme Sentiment = Trouble, Some Housing Data, Shipping, Retail Sales, yada yada (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Late-Cycle Dynamics, Retail Sales Surprise, AI Priced for Perfection, And, Again, the Yen

Small Caps Rally!!!

The action over the past week in the equity market has been extraordinary… Well, okay, I’ll just say it’s been unusual (at least seemingly, until you scroll further), to put it mildly.

It certainly bolsters the bull’s narrative that this historically-bifurcated market (the 10 biggest SP500 stocks doing ~80% of the year-to-date heavy lifting, the remainder utterly languishing) will be remedied via the rest of the market playing catch up.

Inflation Cools/Markets React, Stretched Sentiment, Fed-Cut Market Implications, Small Caps & the Yen (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Weekly Highlights: The Fed, Small Cap Prospects, The Yen, And a Critical Macro Thesis

Fed's Getting Worried

From Powell’s comments to congress today – it appears as though the Fed is beginning to fret recession risk right here:

Quote of the Day: The Difference Between Investing and Speculating

Suffice to say there's historic speculation priced into today's US equity market.

Definition: 

A Suspect Service Sector, Signals In the Jobs Report, September Rate Cut Likely, Market Implications, yada yada (video)

Dear Clients, here's another very important update on overall conditions to take in when you have a few minutes!

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Your Weekly Highlights (important stuff!)

Among the many things that have that tech bubble smell, the present valuation gap between US equities and the rest of the world is like nothing we've seen since then.

US (SP500) price to sales ratio in white, Developed Foreign Markets orange, Emerging Markets blue... Red arrow at the tech bubble peak:

And here's the actual performance for each from the tech bubble peak to the real estate bubble peak (US stocks returned essentially zero during that period):