[Music] hello hello everyone welcome back to another edition of the week in charts I'm your host Charlie Bello and as always I'm going to bring you the most important charts and themes that I'm seeing today if you're watching this on YouTube take a moment hit that subscribe button for more content just like it before we begin I want to talk about this exciting offer from my firm creative planning they're offering a free wealth path analysis to all weekend charts viewers what do you get with that wealth path analysis as well if you sign up for a call with an advisor or a meeting with an advisor you'll get a portfolio checkup looking at your portfolio making sure it's Diversified making sure it will meet your goals and needs retirement road map are you on the right path to retirement to financial Independence proactive Tax Strategies are you taking advantage of things like tax loss harvesting asset location optimal charitable giving and more an insurance estate planning review do you have all of your estate planning documents in order so we're going to take a look at all of that for you sign up for a free wealth path analysis why do you need to invest well I think this one chart really illustrates this overtime your purchasing power is being eroded due to inflation in the past 30 years over 50% decline in your purchasing power and as an investor in US equities you would have outpaced inflation by 962 per which is about 8% per year so reach out today to us at creative planning we have over 300 billion in assets under management and enironment we're in all 50 states so we likely have a location right near you and we're here to help creative planning.com Charle schedule a call or a meeting today what are we going to be discussing on today's episode a lot of important topics number one the market has really moved from Panic to Euphoria in record time about three weeks ago everybody was panicking it's going to be a recession a carry trade all the rest of it and now we're almost back at new all-time highs a period of euphoria once again number two front running the FED I want to talk about some moves in the bond market and interest rates number three I'm asking this question here is in the unwinding of the carry trade already over I'm going to show you some data that may suggest that it is already over for the fed's revisionist history big meeting this week at Jackson Hall want to talk about some comments from Jerome Powell we'll talk about OB obviously what's going to happen with the uh Federal Reserve interest rates at the September meeting number five dollars been going down gold going up we'll discuss that A Tale of Two housing markets very interesting divide we're seeing between existing homes and new homes in terms of sales in terms of pricing uh interesting data points that I think you'll find pretty revealing about what's going on in the housing market number seven I'll give you an earnings update the latest we almost have 90% of companies report reported nid is coming next week obviously that's a big one people are focused on but I'll give you the latest in terms of earnings uh the inal rise of eCommerce is a huge secular Trend I want to talk about and we'll end as we always do with something positive and that would be lower gas prices okay let's begin with the financial markets Equity markets from Panic to euphor you could see it in the chart here of the S&P 500 wasn't an enormous sell-off but it was a huge period of panic for the markets of course we talked about the vix going above 60 briefly on August 5th it was a little under a 10% decline for the S&P 500 you can see here almost a v-shaped recovery here we're almost back at new all-time highs it's rallied now over 10% off of the lows on August 5th and if we look at uh some of the big names the enormous 8 here uh led by Nvidia off of the August 5th lows we're talking about a 43% gain Nvidia almost back at new highs again bitcoin's rallied 29% the N 23% Tesla 21% if we look at uh the major indices here at NASDAQ 100 up 133% small caps at a big day today on Friday up uh 12% now off the lows S&P 500 10% as we talked about and we have Microsoft and Google rounding out the enormous 8 8% and 7% gains if you look at Nvidia 161% gain now year to date that was the biggest correction we saw all year but it's quickly rallied back and so it's going to head into earnings next week with expectations again very high I think it's going to be telling what uh Nvidia does we know the report's going to be very good the question is what how are investors going to react to that but I'd say expectations very high heading into that earnings report so if we look at the areas that are very sensitive to interest rates and we saw this before that correction for that uh 10% selloff we saw rallies big rallies in small caps in home builders and Regional Banks and what we saw on Friday after Jerome Powell's comments which pretty much solidified the September rate cut I would say is another big rally in all of these areas you had small caps up over 3% on the day home builders up over 4% and Regional Banks up over 5% so interesting to see that Trend kind of resuming it was kind of put on hold there with that correction and now kind of resuming that uh optimism I would say over the coming rate cuts and if we look at the S&P 500 year to date now I'm showing this table again because once again it's one of the best starts to a year ever through 163 trading days here you have the S&P 500 Index up over 18% year to date and this is now the second best start to a year for presiden presal election year ever only 1936 uh presidential election year was higher at this point in time so once again one of the strongest returns we've seen in a long time to start a year still obviously have few months more to go in the year and anything can happen in those few months but here and now one of the best starts we're seeing uh in history for the S&P 500 number two here front running the fed and clearly the bond market is now pricing in a series of rate cuts to come and why do I say that well if you look at all different year yields here all different U yields across the yield curve oneyear treasury rate to 10year treasury you can see they're starting to price in those interest rate cuts and do so on a her you could see really started to accelerate lower uh starting in June and you could see the trend here has continued and we're looking now at a 10-year treasury yield of around 380 we entered the year at 388 so down now on the year and if we look at the relationship between bond prices and uh yields you can see that inverse relationship so bonds peaked on a total return basis back in the summer of 2020 so now it's been four years this bare Market's going on in the bond market and that's by far the longest bar Market in history for the bond market you never had a period where it was in a draw down for this long but now you're starting to see that recovery here and you're seeing that because interest rates are declining and investors are earning a higher coupon on their bonds as well and if we look at the past year this is very interesting because a lot of people were saying year ago you just want to stay in cash cash is the place to be because of that huge bare Market in bonds but as we talked about when you have interest rate Cuts bonds tend to do very well and now they're starting to anticipate that and priced that in and lo and behold here we have the aggregate Bond ETF up 99.6% over the past year outpacing cash I'm looking at the treasury bill ETF ETF up 5.4% so widely now outpacing that because interest rates are down over the last year and again come back to this chart here looking at Fed rate cutting Cycles we don't know how many Cuts they're going to do how low they're going to go but history has shown that bonds have done pretty well historically definitely above average returns during most of these uh Fed rate cutting Cycles so it seems like pretty much a done deal as I'll talk about a little bit that the FED is going to cut rates in September and bonds are obviously getting ahead of that and starting to price that in so number three here this was the big story a few weeks ago August 5th you had that panic over the unwinding of the carry trade we had the Nik crashing and you had just record speculative net short positioning in the Japanese Yen and look how far we've come in just a short period of time you're looking at uh uh speculative positioning uh according to the cftc uh going from a record net short 184,000 contracts to the end of last week actually being net long Yen so this is one way to kind of measure the uh carry trade and perhaps already it has been Unwound if we're just looking at this data point here the fact that speculators went from being recognized short to net long here and if we look at the Nik I want to come back to this chart I showed you a few week weeks ago looking at these crashes in the Nik historically and what it did one year forward and what we said was often times crashes have provided an opportunity for investors looking at a year ahead the three biggest crashes in history were in 1987 for the Nik 2008 and 2011 and later strong returns each and every one of those periods of time and that seems to be it's only been a few weeks but that seems to be on Pace to be the same here if we looking ahead a year from now who knows what could happen but so far up already 23% off of the lows from August 5th in terms of the N you can see back to having a pretty good year up 15% dur to date so a lot can change in a short period of time and following periods of panic you tend to have uh these Snapback rallies but I would say this rally back has been stronger than anyone would have expected looking at not just the Nik but looking at the biggest growth stocks looking at the S&P 500 looking at the NASDAQ 100 everything is snapb backed uh much quicker than I think anyone anticipated and it's because I think the recession fears have res re have really pulled back to a large extent all right I want to talk about the fed's revisionist history here Jerome P Powell had some interesting comments at Jackson Hall this week he said the rise in inflation is a result of Rapid increases in the demand for goods strange Supply chains tight labor markets and sharp hikes in commodity prices uh which is interesting uh you might note that he's leaving out a few of what I would say are the elephants in the room here in talking about the money supply and national debt no mention of that still from Jerome Powell at any meeting and he still is holding on to the idea that inflation is just a result of uh increased demand for goods well how did the demand for goods suddenly increase did it have anything to do with the huge expansion in debt and stimulus uh payments did it h did the uh tight labor markets have anything to do with that as well and so really no mention of the reality here and he's saying at the end here Powell is saying there's still much to be learned from the experience that this is his assessment of the events your mileage May difference and and differ my my mileage definitely differs because it's based on reality if it was just the supply chains that seems to be the biggest thing that they've been talking about in terms of causing inflation if it was just the supply chains that resulted in higher prices well as soon as the supply chains normalized the prices would have came back down and of course that didn't happen all we've seen is the rate of inflation come back down but if prices have not come back down so this is a global supply chain pressure index you could see extreme extremely stretched here difficulties in terms of the supply chain talked about that heard all about about that but what you didn't hear is that it largely normalized and it's been normalized for over a year and a half now and there's really no mention of okay why hasn't that led to lower prices and the reason for that it hasn't led to lower prices is because we haven't seen the money supply and national debt come down right so we saw a normalization in terms of the rate of increase in terms of the money supply but there's no anticipation that the money supply is actually going to contract and the US national debt continues to go up so in terms of the primary causes for inflation it's every everywhere and always a monetary phenomenon we had the biggest money supply increase in history and yet the Federal Reserve there's no mention of that whatsoever in terms of of saying what was the cause of inflation so have they learned something I don't think so because they they're not acknowledging it they're certainly not acknowledging the fact that we ran these enormous fiscal de deficits we borrowed trillions of dollars in a short period of time and we sent that out and of course you have too much money chasing too few goods you're going to have higher prices as a result so this this is kind of revisionist History where the FED isn't taking any of the blame for the rise in inflation whatsoever they're saying it's all these external forces that were outside of their control when we all know the truth that they had a big hand obviously in the money supply and they were cheerleading if you read their comments from 2020 and 2021 they were cheerleading doing more fiscal stimulus and borrowing more money now the FED is saying they're independent and they not not getting involved with fiscal issues but back then they very much endorsed uh the idea that you could borrow a massive amount of money and it wouldn't lead to higher prices and in terms of uh the what what his statements were saying about the uh what the FED is going to do in September I think it's pretty clear before this meeting that the FED wants to cut interest rates in September and he's explicit saying the time has come to adjust policy uh but he's leaving room for different timing and the pace of cuts it depends on the incoming data but we know there's enough data at this point for the FED to do what it wants to do which was start cutting interest rates and I think if there was an additional data point this week that we got that really would have solidified the cuts it would be the fact that we got this huge Revision in terms of the number of jobs that were created over the last year was actually revised lower by 88,000 not a small number you tend to have revisions but not that big and so over the past year you're looking at 174,000 jobs that were created per month versus 242,000 previously so additional dat data points saying the US Labor Market wasn't as strong as the numbers were suggesting which would say suggest that the FED should be more concerned about their maximum employment M mandate which I think is just additional evidence that they would need to say okay let's error on the side of cutting interest rates so what are the markets saying the markets are saying 25 basis points is 100% uh priced in at this point and they're leaning more towards that 25 basis point cut than 50 basis point but there's still a chance of 50 basis points I think there's going to be obviously two big reports that dictate whether the FED do 25 or 50 one would be the employment report that will come out in early September and the other will be the next CPI report and if the employment report is EXT report is extremely weak maybe they do 50 but if if it's not I really think that they want to at least start out with a slow move down and a 25 basis point move down we saw all of the other major central banks start out with 25 basis points so the idea that the FED is going to start with 50 basis points outside of a recession outside of a financial crisis I think that's a little bit of wishful thinking but we'll see if let's say you get another big spike higher in the unemployment rate maybe they would consider doing 50 but I don't think it's very likely I think at this point 25 basis points uh is the way to go but it heading into that meeting the FED will do whatever the Market's expecting it to do so look we'll look at this a few days before if it's leaning towards 25 basis points that's what they going to they're going to do if it's leading towards 50 I think that's what what they'll actually do so focus on this as it gets closer and then from there it remains to be seen it seems like the Market's saying the fed's going to cut November December but a lot can change between now and then obviously if inflation starts moving in the other direction employment starts to firm up again a lot of different things could change that Outlook so really these probabilities and odds are only good for the very short term but I think that September meeting for them not to cut at this point I think would be a huge change I don't think that's going to happen I think we're going to get the cut it's just a matter of 25 or 50 and my bet is that they'll start with 25 basis points especially with the way the Market's recovered here almost back at all-time highs with the S&P 500 fears of recession are down there seems to be no reason to start with 50 basis points okay let's talk about the dollar and gold here dollar interesting we we know that it it had been strong for a period of time here but we're seeing a weakening as these expectations of interest rates Cuts increase the dollar is going down so a more doish policy from the Fed so kind of aligning more with these other developed central banks that have already cut interest rates like the Bank of Canada like the ECB and so we're seeing weakness now in the dollar lowest levels since last year in terms of dollar so it's now down on the year a little bit and if we look at gold opposite here looking at gold at an alltime high up 22% year to date and gold I always say is an enigma a lot of people are questioning why wasn't gold stronger over the past few years uh given the concerns about national debt given the concerns about inflation the biggest driver in terms of short-term relationships uh for gold seems to be real interest rates I've tested just about everything in terms of gold and gold the biggest uh in terms of inverse correlations even more so than the dollar would be real interest rates and when real interest rates are falling that's good news for gold when real interest rates are rising very rapidly like we saw in 2022 that tends to be bad news for gold so real interest rates so inflation adjusted interest rates are moving lower again so looking at the real 10-year uh treasury yield now at 1.68% so moving down pretty much at its lowest levels of the year and I think that's an additional Factor helping gold here so gold doesn't like competition from risk-free treasury bonds and if you're looking for a reason why gold has been strong of late I think this is uh one of the biggest reasons that you're getting paid less uh above the rate of inflation in terms of if you're buying a 10-year treasury bond and so I guess the expectation would be if you think the FED is going to continue to cut interest rates over the next year you're going to see real interest rates particularly on short-term bonds if we're looking at oneyear treasuries or or 6 months or 3 month treasury are going to be lower in terms of their rate above above inflation and so that uh perhaps will be additional good news for for gold if that were to play out that way so gold very much an enigma past year has been very good I think one of the big reasons for that obviously is lower real interest rates and the expectation that the FED is going to go back to a more easy monetary policy okay I want to talk about the housing market here it's been the best of times or the worst of times in terms of the housing market depending on whether you're looking at existing home sales or new home sales I'd say the existing home sales Market has been just about as bad as you can get here looking at the rate of of homes being sold over the last year 3.95 million you can see here going back in time pretty much at the lows here you got to go back to lows from the financial crisis uh even lower than the covid lows uh in terms of the number of existing homes that were sold over the last year it's down 2% year-over-year and this is now the 35th consecutive month showing a year-over-year decline that's the longest down strrretch in activity since 2006 to 2009 so you can see this long period of negative year-over-year activity in existing homes sales back during the financial crisis and you're seeing that again today the big difference of course today as we've talked about is home prices are not falling like they did back then they're still continuing to rise I'll be it in the last few months at a slower Pace now this is The Tale of Two Cities chart that I'm illustrating here the big difference between the new home sales uh market and existing home sale Market is inventory is Supply and if we look at uh us new homes for sale you can see here it's been trending up and it's at the highest point that we've seen since 2008 look at existing home sales we're coming off record lows just starting to Trend a little bit higher here but still well below historical average and that's why you're seeing almost no activity in the existing home sale Market why you're seeing prices remain elevated It's really because Supply Still Remains constrained and what we talked about last month was this weird situation where you actually had the median price of a new home sold was lower than the the median price of an existing home sold and that's a weird thing of course because you would think that new homes should sell at a premium to existing uh homes for a number of reasons but that wasn't the case last month a weird situation not likely to persist but uh what we're saying is on a relative B basis people were getting more value for these new homes relative to existing homes and that was simply because of this supply and demand Dynamic where more new homes are available for sale and that's leading home builders to want to cut prices incentivize uh sales and that's offering a better relative deal for buyers and what we're seeing and this is just one data point but what we're seeing is the new home sales uh in increase 6% year-over-year while existing home sales are still down so big difference in terms of activity and and simply as a percentage of the market really we we haven't seen this before where new homes are making up the highest share of a market over a third of the market is new homes uh because you just have this low low existing home Inventory for sale so I think this is going to continue to Trend higher but for now the uh new homes in in terms of sales are are on the upswing and that's been good news for home builders who are already doing very well but you could see here this is a huge secular I think Trend here we've talked about there being a deficit in terms of of homes being available and there was a huge contraction in terms of the industry after the financial crisis a lot of home builders went out went out of business smaller on the smaller end of the market and these bigger publicly traded home builders that are still around well they've been able to increase their profits significantly over the last 10 years obviously huge demand for uh more new homes in the US you can see just stunning stunning gains in the five biggest us home builders uh DH Horton uh DR Horton py Group MVR lenar and Toll Brothers you could see enormous gains across the board we're looking at Dr Horton up 881 per py 71% just crazy gains and you can see it's been backed up by gains in their net income so 834 per increase in profits for Dr Horton uh and we're looking at py up 491 per lenar up 643 per. so just been incredible businesses and if you think that there's a few years uh of of more homes to be built in terms of we need so much more Supply and it's going to take three years 5 years 10 years to catch up with the deficit of homes in the US then this is a trend perhaps that can continue into the future we know we need more homes especially if existing homes uh Supply remains very very low you just have increasing demand for new homes and if we look at uh good news in terms of supply for existing homes been pointing to this chart but it continues here this is about the point of the Year where you tend to see number of listings go down so we should expect that to Trend lower as we go into the fall and the winter but the good news is we're seeing an 18% increase in terms of the active listings of homes for sale over the past year and you can see highest uh number of listings a little bit over a million listings in the US right now of homes for sale that's the highest we've seen since 2020 so that's the good news in terms of Supply the bad news is it's still pretty low and that's leading to of course prices uh continuing to rise on a year-over-year basis although I would say that it's slowing here up 3.6% year-over-year my expectation would be as Supply continues to increase in the coming months coming years you're going to see this rate of increase in terms of home prices continue to decelerate because of that affordability picture that we've been talking about so demand still very much constrained because of the lack of affordability and all you need is to see more Supply coming onto the market to see prices start to normalize and become more affordable and that's been happening in the rental market as we've been talking about but it hasn't happened in the housing market houses for sale because of that Supply constraint so it'll be interesting to see in the next year if we have have lower interest rates what that's going to do in terms of the Dynamics is it going to lead more people to move and Supply to in Supply to increase and home prices to actually come down which would be the opposite of what we saw over the past two years number s Q2 earnings update almost 90% of companies now have reported in the second quarter you have s&p500 profits up 7% year-over-year so another positive year-over-year growth story here for the S&P 500 I would say kind of coming in a little bit uh better overall than expectations heading into the quarter uh but of course as we talked about the price increases in the S&P 500 and a lot of the big stocks have way outpaced the earnings growth Qui so this has still been a multiple expansion story if we're looking at the US Equity Market if we look at sales per per share here you can see 5.8% increase Eur are still very strong still running above the rate of inflation so for now companies if we're looking at Q2 still very profitable I think the the Nvidia report is going to be extremely extremely important obviously because of all the spending that's going into Ai and that'll be a big gauge there in terms of is there any slowdown uh showing up in nvidia's results and is there any uh give in terms of its margins which we've seen just increasing profit margins quarter after quarter for NVIDIA so well we'll definitely talk about that next week in the next week in charts number eight here I want to talk about the inexorable rise of e-commerce and things are always changing and markets hard to predict the future but this is probably one area where you can say 10 years from now there's going to be more Ecommerce than there is today and the reason for that is my first principle here saying if something can be done better faster and cheaper it will eventually be done better faster and cheaper I think that's the story of eCommerce and it's only going to get better it's only going to get faster and it's only going to get cheaper uh because of it and if we're looking at uh e-commerce as a percentage of total retail sales this number still shockingly low to me but uh in 1999 it was 0.6% of total sales 2009 4% 2019 10% and here we are today at 16% so I don't know where we're going to be 10 years from now I just know this number is likely to be much much higher and that will probably be be a good thing for the US consumer because it means you're probably going to be getting uh the goods that you need faster cheaper and and hopefully uh uh better as well in terms of of just having more variety to choose from so uh this is a story for every company whether you're in uh retail or you're in any space it's increasingly becoming obviously an e-commerce uh world and uh this is a secular Trend that I don't think is going to change in the near future so want to end as I always do with something positive and that would be lower gas prices here is a chart showing you the national average gas price in the US 338 a gallon that's now 47 cents lower than a year ago and what that means for the CPI report for August I think it's going to mean a big drop I think it's going to be one of the big contributors there and what the Cleveland fed is expecting is 2.6% that would be down from 2.9% and if we look at inflation adjusted gas prices over time it's important to adjust for inflation you can't just look at the nominal price of course because uh there's been inflation right people's wages are higher the input costs are higher so you're going to have all LC equal higher prices but the good news for the US consumer is we haven't seen an increase over the last 40 years when you adjust for inflation it's actually lower today than the early 1980s when we had that last uh inflation Spike so certainly very difficult time in 2022 we saw the spike here again on an inflation adjusted basis but we've since come down hopefully it'll stay down hopefully it Go lower what's good for the US consumer of course is for energy prices not just gas prices but electricity everything to come down over time and less of your income going towards energy and then you have more money to go elsewhere so I think that's been one of the Hallmarks of prosperity for the human race over time is that we're spending less of our time working to pay for daily energy costs and so if we can get this chart to go lower over the next few decades I think that's going to be great news for everyone and with increase in technology in production and efficiencies that we're finding I don't see any reason why this shouldn't get better in the years to come obviously it's not just a gas story anymore with increase in electric vehicles it's going to be the cost of electricity as well that we're going to start to Monitor and so hopefully again this chart goes lower but the good news is that where we were in 2022 was a very bad place and we're in a much better place today okay I want to end it right there thanks everyone for watching the weekend charts have a great weekend if you're watching this on YouTube hit that subscribe button for more content just like it and I'll see you next time on the week in charts [Music]