Charts of the Week

It’s time for another Charts of the Week! We’ll be posting these on Tuesdays moving forward, giving us plenty of time to gather the best charts we can find with you.

Concentration Consternation

There’s a record level of concentration in the magnificent seven, which make up almost 30% of the S&P 500. Put another way, if you invest $1 in the market cap weighted S&P 500 index, you have about 30 cents of it going to just 7 stocks and another 493 competing for the other 70 cents.

These seven stocks are an even larger part of the NASDAQ 100, over 43%! Often during times of rising and falling liquidity the NASDAQ has a positive correlation with other longer duration assets, like 30-year Treasury bonds. That correlation has broken down of late, mostly due to the Magnificent 7.

But the correlation between stocks and bonds is on the rise again, and that may start to matter for these leaders of 2023 as rates seem set to continue rising on the long end.

Did Volatility Hit An Extreme?

The VIX saw 1.3 million calls bought on Friday, an extreme that sent the index surging higher. This was exhaustive, and as soon as the futures markets opened on Sunday we began to see an unwinding of this positioning ahead of VIXperation tomorrow.

This comes at a time when we are potentially past the seasonal trough, paving the way for the market to attempt to move higher if it follows the pattern set in years past, where there’s an end of year rally in Q4. For that to happen, however, earnings season would need to be better than expected and rates top out and begin to move lower, in our view.

OJ is on the Run

Orange juice has been running hard, up 112.7% year-to-date. It was one of the areas of the market we began talking about looking at gaining exposure to in May of this year as we felt there were more reasons for this run to continue based on poor crop yields from diseases and harsh weather.

This has put orange juice in first place for gains year-to-date, but sugar and cocoa have also clocked very impressive gains. We also discussed sugar, with Ayesha presenting the idea on Bloomberg Daybreak over the summer. It’s been a sweet run!

Will Geopolitical Risk Boost Oil?

During escalations we’ve seen significant rallies in in oil. If this situation does get worse such an outcome is possible. Long positioning in oil is somewhat crowded, however, so we may see some limitation on those gains without a larger catalyst.

Debt Up, Savings and Spending Down .. Sort Of

The debt is rising, along with rates, and leaving the economy behind. This is a trend to keep watching as it makes it more and more difficult to service the debt through the current economic growth trend.

Consumers, who account for the majority of the economy, are beginning to show some signs of strain in the bottom 40% of households, with their excess savings running well below the pre-COVID level.

Similarly, 40% of workers with a 401(k) plan aren’t contributing to it, with rising numbers of savers cashing out due to financial hardship.

Consumer electronics spending has been slowing. When we look at the PC market, Apple has seen a 24% year-over-year decline, with the overall space seeing a 9% drop.

All of this did not dent today’s retail sales numbers, though. Consumers outspent expectations significantly. Coming in at over two times the month-over-month forecast for headline and three times for core. Autos led headline spending.

China Slows and Argentina’s Woes

China has been attempting to use infrastructure spend to cushion the economic impact of a growing real estate market dilemma, with limited success. The economy remains rather weak overall, in a recovery that’s never quite taken off from the ground.

Liquidity in the country is also rolling over, suggesting that stocks there may follow along in time.

In South America, Argentina’s inflation has surged to 138%, with rates following along as the central bank hiked to 133%. Hard to imagine anything like that from where I’m sitting, but there are situations where hyperinflation is happening in a handful of poorly governed countries.

How The Times Have Changed

In 1989 a single earner could support a family without having a college education. It’s hard to imagine having that kind of earning and purchasing power now.

Because just two years ago a … picture of a rock was somehow worth $1.3 million. The dollar just doesn’t buy what it used to anymore.

Thanks for reading Charts of the Week! Consider subscribing for more actionable macro and market insights as we navigate through 2023.