Musings on investing, the economy & all else. VP, Global Macro Strategist,
@CarsonGroupLLC
Advisory services through CWM, LLC, Registered Investment Advisor.
🔥Hot off the press 🔥
Our 2024 Outlook 🙌
Not as contrarian as last year, when we said there’d be no recession and stocks would rebound.
But in key areas we're still going against conventional wisdom.
Take a read 👇
@CarsonResearch
@RyanDetrick
On yield curve inversion, and recessions, via
@AQRCapital
1. It’s not worked in other countries.
2. Inversion is simply a sign of expected rate cuts.
Curve inverted now because policy is tight, but expected to ease.
Recession is not the only path to lower rates.
I would not have thought this combination of market movements was possible — definitely not downplaying the macro but this is more of a pure vol/Japan/tech event than anything:
That didn't take long - hospitals sue to keep prices a secret. Part of their argument:
“Some members worry about the ability of their websites to function at all with such a large file”
Hard to put a large spreadsheet online!
cc
@Jesse_Livermore
CPI data was better than headline suggests 🧵
Headline up 0.1% m/m in Nov
3M: 2.2% (annualized)
6M: 3.1%
12M: 3.1%
But this is all about shelter & its lags.
CPI Ex Shelter: -0.5% m/m in Nov
3M: -2.5%
6M: 0.4%
12M: 1.4% (< 2% for 6 months) 👌
@CarsonResearch
@RyanDetrick
1/
10 years ago today I was part of one of the most amazing ceremonies … my US citizenship oath ceremony (which I highly recommend if ever you get a chance to watch).
Unforgettable experience, and am ever grateful for America & its people 🙏🏿
The American Dream is my reality 🇺🇸
Ouch, that was a hot inflation report 🔥
Headline:
1M: 0.4%
3M: 4.6% (annualized)
6M: 3.2%
12M: 3.5%
But "core" problem remains shelter. CPI ex shelter
3M: 3.8%
6M: 2.1%
12M: 2.3%
@CarsonResearch
@RyanDetrick
1/
The pushback begins …
Amazing that several Fed governors likely aren’t even ready for a 25bps cut in September 🤦🏽♂️
This is going to be quite the push and pull between markets and the Fed over the next few weeks 👎
And if CPI is even a tad hotter than expected … brace
Markets pricing in 71% probability of a 50 bps cut in September.
And ~ 112 bps of cuts in '24. Meanwhile, dot plot is at 2 cuts.
If the Fed isn't inclined to do a 50 bps in September, they're gonna have to talk down the probability of that to zero over next 4 weeks 🤔
@TheStalwart
Reading Obama’s biography, it’s striking how much of the economic/financial decision making fell on Summers/Geithner. So all of this stuff sounds like an implicit defense of what they did in 2009-2010.
The consumer is still in good shape 👍
In fact, most US households have come out ahead of inflation since the pandemic hit ...
More in my new blog 👇
Sign up there for more from
@RyanDetrick
@CarsonResearch
Some thoughts on CPI data 🧵
Disinflation is happening, but CPI is mostly about shelter.
Headline CPI
Last 3M: 1.8% (annualized)
6M: 3.3%
12M: 3.4%
CPI Ex Shelter
Last 3M: 0.1%
6M: 2.3%
12M: 1.8%
Inflation is at 2% 🙏
@CarsonResearch
@RyanDetrick
1/
Interesting details in the GDP data release today ...
Manufacturing contribution to real GDP growth -
Q4 '24: 85 bps (headline 3.4%)
Q3: 92 bps (4.9%)
Construction contribution -
Q4: 26 bps
Q3: 65 bps
Yet, PMIs < 50 & LEI said "recession" 🤦♂️
@CarsonResearch
@RyanDetrick
Dovish details in Fed's dot plot 👇
Still projecting 3 cuts (2024), despite
- Upgrading their 2024 GDP growth from 1.4% to 2.1% 💪
- Increasing core PCE projection from 2.4% to 2.6%
- Raising nominal GDP growth expectation from 3.8% to 4.5% 😱
@RyanDetrick
@CarsonResearch
Good news on inflation 🙏
Looking at breadth of core PCE categories (178), there's progress. Even in 2024 👍
Share with 4%+ y/y inflation
Dec '19: 10%
Jun '22: 58%
Dec '23: 42%
Apr '24: 33%
Share in deflation y/y
Dec '19: 28%
Jun '22: 13%
Dec '23: 21%
Apr '24: 30%
More 👇
NVIDIA up ~7% today!
Ignoring recent gyrations, what’s amazing is the incredible earnings growth driving returns.
From 1/1/23-6/21/24, the stock is up 767%.
700%-pts is from earnings growth 🔥
More in my new blog 👇
@CarsonResearch
@RyanDetrick
PPI was soft & under the hood, wholesale/retailer margins aren't rising (PPI "trade services")
Combine with forward-looking measures 👇
Consumer inflation expectations normal
Business expectations normal
Market expectations ~ 2%
There's no inflation problem!
@RyanDetrick
Quite a year for markets & the economy 🙌
S&P 500 25%+
Real GDP growth > 2.5%
UE rate < 4%
Inflation lower
A lot of focus on consumer strength (rightfully) 💪
But here’re 3 positive manufacturing stories going into 2024 👇
@CarsonResearch
@RyanDetrick
Interesting week ...
S&P 500 -3.1%
Nasdaq: -5.5%
But Dow Flat!
8 of 11 sectors outperformed the S&P 500.
As did mid caps, small caps, and value.
@RyanDetrick
Good reasons to be jolly 🎅
- Stocks up
- Gas prices down
- Mortgage rates easing
- Unemployment low
- Home values higher
- Savings accounts yield > 5% 🙂
Consumer confidence is rising 👏
More in my new blog 👇
@CarsonResearch
@RyanDetrick
End/
Huge productivity gain for Q3: +4.7% (2.2% y/y) 💪
Since 2020, productivity: 1.4%
2010-2019 trend: 1.2%
Could be a game-changer for the economy & inflation. If it continues ...
Wage growth = Productivity + Inflation + Change in Labor Share
Mid-late '90s saw strong wage
Fed laid out their reaction function in the dots ...
3 cuts in '24 assuming 2.4% core PCE
4 (more) cuts in '25 w/ core PCE @ 2.2%
Markets pricing in 6 cuts in '24. Not far-fetched given dots & expected inflation. Plus some (low) odds for slower growth🤔
Core PCE @ 2% (3M/6M)
CPI inflation was firmer but positives under the hood 🤞
Headline -
Feb: 0.4%
3M: 4.0% (annualized)
6M: 3.2%
12M: 3.2%
It really is about shelter 🤦♂️
CPI ex shelter -
3M: 2.9%
6M: 1.8%
12M: 1.8%
Which is ... not too bad 🤔
@CarsonResearch
@RyanDetrick
1/
All this 👇, plus
Gas prices falling
Mortgage rates falling
Oh .. and you can still get 5%+ in those savings accounts. For now ...
Things in place for consumer confidence to continue rising.
How bad are things?
Stocks at all-time highs
Gold at all-time highs
Home values at all-time highs
Bonds up 5% for the yr after a historic two yr bear
Net wealth at all-time highs
Debt relative to incomes no where near historic highs
Things appear to be better than most think.
Something striking 👍
CPI ex shelter is running at 1.5% y/y
Last 3M: 1.6% (annualized)
Last 6M: 1.6%
And yes, this includes food & energy.
This is probably as representative as it can get for inflation faced by majority of US households i.e. 66% of whom are homeowners.
Good news on personal incomes 💪
Last 3M (annualized)
Disposable income: +4.9%
Employee comp: +5.8%
PCE inflation: +2.4%
Since Feb '20
Disposable income: +26%
Employee comp: +25%
Inflation:+18%
Real income ex transfers
3M: +2.5%
Feb '20: +6%
@CarsonResearch
@RyanDetrick
1/
A better CPI report than the headline suggests 🤔
Headline CPI -
1M: 0.4%
3M: 4.9% (annualized)
12M: 3.7%
Drag from energy is done.
But we're seeing disinflation elsewhere, including groceries.
Also, lower gas prices = softer Oct CPI
@CarsonResearch
@RyanDetrick
1/
Some thoughts on the payroll report 🧵
Solid employment +
Solid wage growth +
Normal hours
= Strong aggregate incomes (+4.7% annualized last 3M)💪
With inflation pulling back, that means strong real incomes (~ +2.8% annualized last 3M)
👌
@CarsonResearch
@RyanDetrick
1/
The S&P 500 is up 20% from its October low, after falling 25%.
Leaving it 10% below the Jan 3rd, 2022 peak (volatility math!).
What next?
@RyanDetrick
(who's been calling the Oct low for a while now) has a great piece on the
@CarsonResearch
blog.
Powell really didn't push back on a dovish dot plot 🎅
Members project 3 rate cuts in 2024.
Rate projections -
2024: 4.6% (vs 5.1% in Sep)
2025: 3.6% (vs 3.9%)
Comes on the back of lower core PCE estimates
2024: 3.2%
2025: 2.4%
@CarsonResearch
@RyanDetrick
1/
New all-time high on the S&P 500 price index 🙌
First since Jan 3rd, 2022. A lot's happened since then 😱
Fed Funds rate was 0-0.25%; now 5.25-5.50%
10-year yield was 1.63%; now 4.13%
Real 10-year yield was -0.97%; now 1.80%
UE rate was 4.1%; now 3.7%
Prime-age employment
Single-family housing activity💪
Starts: +35% y/y (Feb '24)
Permits: +30%
Multi-family struggling. But single-family is ~ 40% of residential investment in GDP
Total units under construction up 45% from 2019 average
And we're talking about when, not if, rate cuts will come 🙌
Building permits up 1.9% and at a six month high.
Single family permits highest since May '22.
Permits are a nice leading indicator and yet another sign of a healthy overall economy.
New record high for S&P 500 not the same as prior high 👇
On 3/28
YTD price return: 10.2%
EPS growth: 3.1%-pts (pp)
P/E change: 7.1 pp
5/15
YTD: 11.3%
EPS: 5.3 pp
P/E: 6.0 pp
New record powered by earnings growth!
But its about margins 👇
@CarsonResearch
@RyanDetrick
1/2
Soft but not too soft
Strong but not too strong 👌
That was the story of the April jobs report 🧵
Payrolls +175k in April
Last 3 months avg: +242k
2023 Feb-Apr avg: +237k
2019 avg: 166k
Soft, but not weak!
@CarsonResearch
@RyanDetrick
1/
Consensus right now for 2024 -
Markets: average returns
Economy: soft growth/mild recession
We have a slightly different take, which
@RyanDetrick
and I will talk about tomorrow (Tuesday, 12/19 @ 1pm CT)
Register 👇
@CarsonResearch
@CarsonGroupLLC
Markets pricing in 71% probability of a 50 bps cut in September.
And ~ 112 bps of cuts in '24. Meanwhile, dot plot is at 2 cuts.
If the Fed isn't inclined to do a 50 bps in September, they're gonna have to talk down the probability of that to zero over next 4 weeks 🤔
To
@RyanDetrick
's point 👇
From 12/31/22 - 6/20/24, NVIDIA is +795%
Of which
Earnings growth: +715%-pts
Multiple growth: +80%-pts
This year has been more about multiple growth
YTD (6/20): 164%
Earnings: +71%-pts
Multiples: +93%-pts
Class of its own versus the other "Mag 6"
S&P 500 up 17.5% YTD on 8/16
2.2% off record high (7/16)
But, NTM EPS moved up & now contributes more to YTD return
YTD: 17.5%
EPS growth: 9 %-pts
Multiple: 7.5 pp
Dividends: 1 pp
Margin expansion a big driver of EPS growth, and returns
@RyanDetrick
@CarsonResearch
Good riddance September!
But we did get a lot of great economic data to end the month.
🧵
Last 3 months (annualized) -
Core PCE inflation: 2.2%
Core services ex housing: 3.4%
Rate hike probabilities
Nov: < 15%
Dec: < 40%
Fed is done 🙏
@CarsonResearch
@RyanDetrick
1/
From Dec 31st, 2018 through Dec 13th, 2023, the S&P 500 gained over 100%!
Stocks doubled over 5 years, amid
- A worldwide pandemic
- Highest inflation in 40+ years
- Surging rates
What could be next? New blog 👇
@CarsonResearch
@RyanDetrick
Via PPI data ...
Core PCE likely softer than core CPI, thanks to softer motor vehicle insurance 🤞
But some heat will come from portfolio management, thanks to higher stock prices (esp y/y) 🤦♂️
Also, retail/wholesale margins starting to improve (comes from PPI - trade
New blog looking at how the economy is working for lower income workers 👇
Balance sheets look better across income groups 👍
Real wage growth has been stronger for non-managers, vs managers. Both accelerating recently 🤞
@CarsonResearch
@RyanDetrick
Great news with June shelter inflation rising at the slowest pace in 3 years 🥂
What's amazing is how shelter is still propping up CPI 🤦♂️
Headline CPI
3M: 1.1% (annualized)
6M: 2.8%
12M: 3.0%
CPI ex shelter 🙌
3M: -0.5%
6M: 1.6%
12M: 1.8%
@CarsonResearch
@RyanDetrick
Fed leaves rates unchanged, but big shifts in their projections.
They increased their 2023 GDP growth projection from 1% to 2.1% 💪
2024: Up from 1.1% to 1.5%
Clearly acknowledging a stronger economy, which also means higher rates for longer!
@CarsonResearch
@RyanDetrick
1/
Finally, soft data catching up to hard data 👍
September ISM PMI -
Headline: 49.0 (+1.4)
Production: 52.5 (+2.5)
New orders: 49.2 (+2.4)
Employment: 51.2 (+2.7)
Prices down 4.6 points to 43.8 👌
Meanwhile, manufacturing production up 2% YTD (Aug).
@RyanDetrick
about time 😁
Unemployment rate rose from 3.7% to 3.9%
That was due to higher UE rates for young workers
16-19 yrs: 10.6 to 12.5%
20-24: 5.9 to 7.2%
25+: 3.2% unchanged
Prime-age employment participation rate up to 80.7%
Higher than at any point from Jul '01 - Feb '20 💪
@RyanDetrick
- PMIs ticking higher (no sign of bank stress in comments)
- New home sales & single family starts/permits rising
- Oil & food prices moving down = real income growth
- Auto sales up 7% in March & highest level since Jun ‘21 😱
Things are … ok?
@RyanDetrick
@CarsonResearch
All in all, good riddance to August & September.
🥂 for Q4 starting, albeit with a shutdown 🤦♂️
But seasonality moves in the bulls favor as we gear up for Q4.
Perhaps more so when Aug-Sep are down.
More from
@RyanDetrick
👇
/End
Kudos to
@employamerica
@IrvingSwisher
for nailing May core PCE @ +0.08% 🙌
Looking at breadth of core PCE categories (178), there's lot of progress. Even in 2024 👍
Share with 4%+ y/y inflation
Dec '19: 10%
Jun '22: 58%
Dec '23: 42%
May '24: 35%
Share in deflation
Dec '19:
The 2020 stock market recovery should not be surprising given the V-shaped recovery in corporate profits, which are now higher than they were at the end of 2019 (h/t
@lhamtil
).
Thread on what drove this, using sectoral balances & Levy-Kalecki 👇
1/
The Q1 GDP report masked underlying strength.
Cyclical investment is rebounding 👍
But don’t discount the fact the consumer remains strong 🙌
More in my new blog 👇
Sign up there for our weekly newsletter
@CarsonResearch
@RyanDetrick
There's always a question about luck when it comes to investing, and how much it matters.
@RyanDetrick
and I spoke to Prof. Jeremy Siegel about this recently, and my latest blog is about how to positively expose yourself to luck while investing 👇
Probability of Fed cutting 50 bps in Sep fell from 75% on Aug 5 to 25% on Aug 16
But S&P 500 rallied 7% as we got +ve data 👇
8/8: +2.3% (Claims)
8/13: +1.7% (PPI)
8/15: +1.6% (Claims, Retail Sales)
Markets still expecting ~ 100 bps cuts in '24
@CarsonResearch
@RyanDetrick
Well, the duct tape held throughout the flight 🙌
Some really good duct tape it is, considering it’s holding together part of the engine pod!
Glad it can be used in a pinch when screws aren’t available …
Obvious parallels between 2024 & 1968 (incl Chicago as Dem convention venue)
So '68 redux?
1968 was a crazy year but we also saw monetary & fiscal tightening (tax hikes, spending cuts), and ...
S&P 500 +11%
New blog 👇
@CarsonResearch
@RyanDetrick
Atlanta Fed Q2 GDP nowcast at 2.4%.
- Final demand at 2.5%
- No drag from residential investment!
If nowcast is right, we'd have:
- 2.6% real GDP growth over the past year (> than pre-pandemic growth)
- 3.6% UE rate
While Fed Funds > 5% 🤷♂️
@CarsonResearch
@RyanDetrick
Thru Q2, productivity growth likely ran ~2.5% year-over-year
Outside of recession-distorted periods, productivity growth tends to be highest in the US during periods most closely aligned w/ full employment.
Full employment can support both equity and efficiency over time.
One thing that came out of today's labor report: aggregate income growth ~ 6% annualized over the past 3 months.
That's strong, but not red-hot. also suggests strong nominal GDP growth.
Much more in my new blog 👇
@CarsonResearch
@RyanDetrick
Been saying the economy will avoid a recession this year, and stocks will rebound.
But we're also thinking about risks & this new blog gets into a big one: energy prices.
Shoutout to
@IrvingSwisher
for their amazing work🙏
@CarsonResearch
@RyanDetrick
Some serious factor rotation!
In one day, the Blackrock U.S. Equity Factor Rotation ETF $DYNF has seen inflows of $1.9 bil ...
More than twice the net flows into all the Bitcoin ETFs
IYKYK
Update for day 10 of the
#Bitcoin
ETF Cointucky derby. Volumes and flows are both slowing down a bit. Another slight negative day on flows. Total net flows stand at +$744 million. $IBIT likely crosses 2 billion in assets today
100 trading days into the year!
The momentum is good, given the 7%+ return for the S&P 500 through the first 100 days of the year.
Even better: Nasdaq at a 52-week high.
Great piece by
@RyanDetrick
👇 is the real "dry powder"
Plus, households (aggregate) became less levered in 2023
Household debt grew $988 Bil
Disposable income grew $1.33 Tr
In 2019
Household debt grew $601 Bil
Disposable income grew $430 Bil
The economy is growing 'only because consumers are maxing out their credit cards' is one we hear all the time.
Again, look at the data, it simply isn't true.
Credit card debt as a % of available credit is 24%, right back to pre-Covid levels.
Another gem from
@sonusvarghese
👇
And even if you ignore the whole "excess savings" concept ....
Household holdings of cash/liquid equivalents (checking + saving + money market funds) are ~ $2.7 Tr above what you'd expect with the pre-pandemic trend.
And ~ $1.4 Tr above trend if you take out MMFs.
Although it probably doesn't even make sense to look at 'excess savings' anymore, the bottom line is there are a few ways to look at it.
@sonusvarghese
breaks it down here and safe to say households still have at least $1T in extra savings stored up.
@_SofiaBaig_
Would be interesting if it was framed as “would you still want prices to go down if it meant a recession that increased the likelihood of you losing your job”?
Claims data reduce left tail risk, which is why equities rallied
Non-seasonally adj. data 👇
Initial claims are low (~ 2022-'23)
Insured unemployment rate (cont. claims as % of covered employment) a tick above 2018-'19
Hiring is down, but layoffs still low 👍
@RyanDetrick
Thoughts on the Fed meeting in my new blog ...
Ultimately, Fed keeps their eye on the big picture: inflation has eased but remains elevated.
One way to look at it is distribution of PCE categories 👇
@CarsonResearch
@RyanDetrick
Big upward revision to Q1 GDP, from 1.3% to 2%.
A big upward revision in net exports (more export growth, less import growth).
But services spending also revised higher, from 2.5% to 3.2% in Q1.
Domestic demand: 3.5% (3.3% prior)
@CarsonResearch
@RyanDetrick
1/
"If my stock portfolio is rising and home prices are climbing, I don't feel like I need to be saving as much."
Neil Dutta
@RenMacLLC
makes a great point about savings rates & net worth.
1980s-2000s: Savings rates fell as net worth rose
2010s: Period of balance sheet repair
Retail sales 🔥
+0.7% in March, despite lower auto sales
+3.2% in Q1 (annualized)
Thanks to surging online sales.
Control group sales +1.1% in March
+5.6% in Q1 💪
Meanwhile ...
CPI - commodities ex food and energy: -1.4% in Q1 (annualized)
@CarsonResearch
@RyanDetrick
$NVDA is simply in a class of its own 😱
From 1/1/22 - 2/21/24, returns were driven by earnings growth for the S&P 500 & Mag 7 (some not so magnificent btw)
But $NVDA on steroids 🔥
Of its 130% return
Earnings: +231%-pts
Multiples: -101%-pts
@RyanDetrick
@CarsonResearch
"I think the biggest mistake you can make in macro is just assuming that relationships in the economy are stable from one cycle to the next."
This Facts vs Feelings episode that
@RyanDetrick
& I got to do with Neil Dutta of
@RenMacLLC
was 👌
Our biggest active bet in 2023 was overweighting cash & being significantly underweight duration.
Even post-SVB.
Looking back, it was bang on top of our 2023 outlook &. came right out of our call for no recession in 2023.
Note: OW equities was the biggest bet in our
The
@CarsonResearch
team came into this year expecting no recession, OW equities and expected a nice rally.
We are more proud of our bond call though.
We were UW bonds and had no treasuries with a little intermediate bonds at the start of '23.
We expected a stronger economy
The recession keeps getting delayed.
Consumption up 0.8% in April, double expectations.
Real consumption up 0.5% ~ 6% annualized rate.
Goods spending jumped (autos), but even services running strong.
Real consumption still slightly > trend.
@RyanDetrick
@CarsonResearch
1/
Cracked!
Pump prices are holding steady despite surging oil prices.
And they could be heading lower, which will be another tailwind for real incomes.
Here’s a new blog on why 👇
@CarsonResearch
@RyanDetrick
This blog has been a while coming ... discussing our own custom leading economic index, which we developed over a decade ago.
Read how it's different from the Conference Board's version, and what it's telling us today.
@RyanDetrick
@CarsonResearch
Headline CPI: 0.1% m/m
Core CPI: 0.4%
Over the past 3 months (annualized)
Headline: 2.2% (lowest since Nov '20)
Core: 5.0%
Households experience headline inflation.
So, households are seeing real income gains & keeping consumption humming.
But Fed focused on core.
Not only did foreigners want dollar claims, they were even happy to get almost zero yield for them - and entirely covered America’s $860B current account deficit in 2021. A fascinating read from
@M_C_Klein
Not a crazy consumer. For all the talk about consumers dipping into savings and going off the rails with credit cards, real incomes ex transfers rose 3.1% while consumer spending rose 3.2%. Indeed, the saving rate rose a touch last year. Consumers are supported by income growth.
Unit auto sales strengthened to 15.81 million units SAAR in February, according to data from Wards. This unwinds the decline seen last month. At any rate, it's unit auto sales, not the ISM Manufacturing PMI, that gets booked into the US GDP bean-count. Have a great weekend.
About the hot April PPI number, which Powell calls "mixed" 🧵
Headline: 0.5% m/m (2.2% y/y)
Ex food/energy: 0.5% (2.4%)
M/M data thrown off by revisions 👇
March Headline PPI
Prior: 0.2%
Revised: -0.1%
March Core
Prior: 0.2%
Revised: 0.0%
@CarsonResearch
@RyanDetrick
1/
Initial claims 👍 with low layoffs
Insured unemployment rate in line with 2023 & 2018-2019
But doesn't mean risks aren't rising & tight policy not having an impact 👇
Production of business equipment pulled back in July & has eased since 2022
@RyanDetrick
@CarsonResearch
S&P 500 up 17%+ YTD
As
@awealthofcs
pointed out
2020 +18.4%
'21 +28.8%
'22 -18.2%
'23 +26.3%
Don't miss the markets best years & limit upside 🤔
But that's what protection strategies with buffers & caps do. New blog 👇
@CarsonResearch
@RyanDetrick
This 👇
In nominal terms, GDI
+4.6% y/y in 2023
+4.1% y/y in 2019
2024 GDI was strong despite 80 bps drag from net interest payments by corporations (record -32% y/y drop even with higher rates)🤷♂️
Corporate profits would be even stronger if you backed out Fed's "losses"!
Remember when they told us GDI was a major worry?
It just came in at 4.8%, the best in two years.
Avg of real GDP and GDI? 4.1%, again the best in two years.
Hopefully this comes off as obvious, but this isn't a bad thing.