Charts of the Week
US industry sectors react to Republican victory in 2024 election
What the chart shows
This chart tracks the performance of S&P 500 sectors during presidential election years, highlighting sector overperformance and underperformance relative to the index. Each year is color-coded by the political party of the elected president—blue for Democrats and red for Republicans—revealing patterns in sector performance based on political outcomes.
Behind the data
When this chart was first published on 30 August 2024, the focus was on the historical tendency of certain sectors to outperform the S&P 500 during presidential election years. It highlighted a clear correlation between sector performance and the political affiliation of the winning president, with Financials typically outperforming during Republican victories and Consumer Discretionary thriving during Democratic wins.
Since then, the 2024 election results have reinforced some of these historical trends while diverging in others. For example, Financials and Communication Services aligned with their historical patterns of outperforming during Republican years. However, Consumer Discretionary and IT, which showed mixed historical performance in similar contexts, delivered strong results in 2024, demonstrating the complexity of sector performance beyond historical norms.
US markets thrive despite recession signal
What the chart shows
This chart tracks the performance of the S&P 500 following a trigger of the Sahm Rule, which occurs when the three-month average unemployment rate rises by 0.5% or more from its prior year low. Historical data shows that such triggers have consistently preceded recessions, with the index typically experiencing turbulence initially but recovering strongly over the subsequent year. The chart visualizes median, interquartile and percentile ranges of S&P 500 performance after Sahm Rule triggers, offering insights into potential market behavior over six-month and one-year horizons.
Behind the data
When this chart was first published on 9 August 2024, the Sahm Rule had recently been triggered, and historical precedent suggested an imminent recession. At the time, the analysis indicated potential short-term downside for the S&P 500, though historical data showed recovery and growth over the longer term.
Since then, this cycle has defied historical patterns. 2024 ends without a recession, and consensus forecasts assign a low probability of one in 2025. Instead, the economy has displayed surprising resilience, with GDP growth remaining strong and the S&P 500 surging to new highs. This deviation from past trends underscores the unique dynamics of this economic cycle, driven by fiscal stimulus, sustained consumer spending and labor market flexibility.
Localized employment trends help US avoid recession in 2024
What the chart shows
This chart tracks the share of US states where the three-month average unemployment rate rose by 0.5 percentage points or more relative to its 12-month low, a measure of localized Sahm Rule triggers. The green line represents an equally weighted share of states, while the blue line reflects a labor force-weighted measure. A horizontal grey line at 31% marks the historical benchmark associated with nationwide recession onset. The chart reveals how state-level Sahm Rule triggers fluctuate significantly during economic cycles, with peaks typically coinciding with major recessions.
Behind the data
When this chart was first published on 5 April 2024, over 50% of states had triggered the Sahm Rule, exceeding the historical recession threshold of 31%. This raised concerns of an impending recession, amplified by concentrated layoffs in sectors like technology, finance and services. At the time, the broadening scope of state-level triggers suggested sector-specific vulnerabilities spilling over into wider economic risks.
Since then, the Sahm Rule was ultimately triggered in only 40% of states, far fewer than during past recessions such as 2008 or 2020. This divergence helps explain why 2024 avoided a nationwide recession. Unlike prior cycles where unemployment pressures were widespread, the 2024 triggers were concentrated in specific states and industries, reflecting localized employment dynamics rather than a broad-based downturn.
Volatile revisions to US payrolls spark shift to alternative data source
What the chart shows
This chart tracks 12-month revisions to US nonfarm payrolls for April-to-March cycles, comparing initial reported figures to revised totals. Each year is represented by a red bar for downward revisions or a green bar for upward revisions, scaled by magnitude. The blue line shows the error relative to total payroll levels, while the dotted orange line indicates the average negative revision mean. The dotted red line represents the 5th percentile Value-at-Risk (VaR), marking extreme downside scenarios for revisions.
Behind the data
When this chart was first published on 23 August 2024, US nonfarm payrolls had been revised downward by 818,000 jobs for the 12 months through March 2024, a significant reduction of 0.5%. This marked the largest downward revision since 2009, exceeding historical averages and even surpassing the 95% confidence VaR estimate of 602,000. Concerns were raised about the reliability of initial payroll figures and the broader implications for the labor market’s perceived strength.
Since then, the volatility of these revisions has further highlighted the challenges of interpreting employment data. Repeated large-scale adjustments, often exceeding hundreds of thousands of jobs, have led some macroeconomists to seek alternative data sources. For example, job opening data from the Indeed Hiring Lab – available through Macrobond – offers a more stable and reliable perspective on labor market trends, closely correlating with payroll data but exhibiting significantly less volatility.
These ongoing revisions underscore the need for caution when relying on nonfarm payrolls for real-time analysis.
China’s housing market shows signs of recovery after government stimulus
What the chart shows
This chart visualizes diffusion indices – the share of cities experiencing month-on-month price changes – for new and existing homes across 70 major cities in China. A reading of 50 indicates no change in prices, while readings above or below reflect price increases or decreases, respectively. The blue line tracks new housing, and the green line tracks existing housing.
Behind the data
When this chart was first published on 2 February 2024, the diffusion index for existing housing had just hit zero for the first time since 2014, signaling widespread price declines. The index for new housing had also reached a historic low of 10, reflecting significant stress in China’s property market.
Since then, the index for second-hand housing has hovered near zero, while the new housing index declined even further below 10. However, recent months have shown signs of a turnaround. Both diffusion indices have risen, likely spurred by the People's Bank of China’s (PBoC) easing of monetary policies, including a 30-basis point cut to the 1-year medium-term lending facility (MLF) policy rate and a 50 basis-point reduction in the interest rate on outstanding housing loans in September.
Additionally, the lifting of home purchase restrictions – first imposed in 2016 during a housing price boom – has provided further support.
Despite these encouraging signals, average housing prices in China's major cities remain at historically low levels. But the market seems poised for recovery, especially if further government stimulus measures are enacted.
Chart packs
G7 inflation trends over the last six months
Last October, we debuted the inflation accelerometer, a dashboard designed to monitor price increase trends across the G7 nations over a six-month period. Each accelerometer – represented as a pie chart – represents inflation rates as percentages of their five-year rolling highs.
Since its initial release, there have been no new local inflation peaks in any of the G7 countries. Encouragingly, all nations have experienced a deceleration in inflation, with all except Italy stabilizing around the 2-3% mark. Notably, France and the UK have shown significant progress in curbing inflation over the last six months. In contrast, the US has seen minimal improvement, maintaining inflation levels at around 40% of its five-year high.
Global economic recovery gains momentum as financial conditions ease
Recent {{nofollow}}updates from the OECD highlight that the global economy has been performing better than initially expected, particularly in the US. This chart analyzes various economic activity indicators alongside a Global Financial Conditions Index (FCI). We created this composite by integrating {{nofollow}}the IMF’s Developed Markets (DM) and Emerging Markets (EM) FCIs through Principal Component Analysis (PCA). This method included an Autoregressive (AR) model to predict third quarter trends, optimized by selecting the most effective lag length.
The graph indicated positive trends, as reflected in the global Manufacturing Purchasing Managers’ Index (PMI), industrial production and trade data, all of which have shown signs of recovery recently. The global FCI corroborates these findings, approaching an easing position that favors a supportive macroeconomic environment.
Visualizing three years of S&P 500 sector shifts
This chart presents a colorful ‘quilt’ representation of S&P 500 sector performance over the last three years, showcasing by comparing the monthly performance of 11 S&P 500 industries, from Real Estate and Financials to Industrials and Energy. For each month, the performance of these sectors is analyzed by calculating the 20th, 40th, 60th and 80th percentiles, grouping each sector into performance brackets for comparative analysis.
Shades of blue and green represent sectors that have outperformed their peers, while various red hues indicate underperformance, as detailed in the legend. By following the horizontal progression of colors for each sector, you can track its relative performance over time, creating a visual tapestry of market dynamics. Additionally, the closing month S&P 500 price return index is plotted along the left y-axis, providing a reference for overall market trends corresponding to the sectoral shifts.
Bullish trends emerge in Hang Seng and CSI 300 as golden crosses appear
Hong Kong and China’s equity markets are showing optimism as the Hang Seng and CSI 300 indices rally, supported by China’s accommodative economic policies and attractive valuations. Technically, both indices have already reached a “golden cross,” where their 50-day moving averages have exceeded their 200-day moving averages. This technical milestone typically indicates potential upward momentum in the markets.
The above chart tracks these movements clearly, with green triangles marking the golden crosses for each index. Despite these positive technical indicators, investors may still exercise caution due to ongoing economic uncertainties in China, particularly in the real estate sector. The persistence of these trends will be key to determining whether the recent bullishness signals a long-term recovery or a short-lived rally.
Global central banks' rate expectations diverge
Central banks around the world are sending mixed signals about their monetary policies. The above, updated with data from one of our partners, Oxford Economics, shows the expected shifts in policy rates by various central banks by the end of 2024, based on the futures contracts expiring this coming December. It illustrates market expectations for rate adjustments as a response to evolving economic conditions globally.
Recent developments show that Sweden’s Riksbank and the Swiss National Bank have aligned their strategies, opting for the first policy rate cuts, while the Bank of England has chosen to hold its rate steady as of last week. Notably, while most central banks – including the Federal Reserve, European Central Bank and the Bank of Japan – are projected to cut rates by the end of 2024.
ECB Analysis of Systemic Stress in the Euro Area Financial Sectors
This chart, based on an {{nofollow}}ECB working paper, tracks systemic financial stress in the euro area, breaking it down into sub-indices including equities, bonds, FX, money market and financial intermediaries. Each component reflects a different aspect of the financial system’s health, with the data presented as a one-month moving average as of September 2024.
Systematic stress has shown a general decline since September 2022, indicating a period of relative stability. However, a noticeable uptick in the stress level associated financial intermediaries poses a question: Is this merely a temporary fluctuation? Or does it signify the onset of deeper financial instability?
The lower part of the chart, which depicts the correlation of these indices with systemic stress, offers additional insights into how closely each index’s movements are related to overall financial health.
Assessing China’s economic health beyond GDP
While China’s GDP growth for the {{nofollow}}first quarter exceeded expectations, other key economic indicators such as retail sales, industrial production and fixed asset investment presented a mixed picture.
In this context, the {{nofollow}}Li Keqiang Index offers an alternative perspective on China’s economic health. Named after Li Keqiang, the 7th Premier of the People’s Republic of China, this index focuses on three essential indicators: electricity consumption, bank loans and rail freight volumes, which Premier Li favored over traditional GDP as more accurate reflections of real economic activity.
This chart shows that recently, the Index has tended to suggest more robust economic activity than the official GDP figures, indicating a possible upside bias in assessing China’s economic health.
India’s economic resilience through alternative growth indicators
The chart provides a detailed nowcast of India's economic performance, using key indicators such as railway freight earnings, electricity demand and gross credit activity, akin to the alternative measures used in China’s Li Keqiang Index.
It shows a sustained economic momentum, with the green line indicating that despite fluctuations, the underlying economic structure is poised for continued growth. The differences between the nowcast and the actual GDP data, shown in purple, underscore potential underreported strengths or weaknesses in the economy, offering a more nuanced insight into India's economic trends than GDP figures alone.
This comprehensive approach reveals an economy that, while facing challenges, demonstrates considerable resilience and potential for future growth.
South Korea’s news sentiment index predicts positive shift in equity earnings
The chart illustrates the relationship between South Korea's news sentiment index and its equity earnings over time, highlighting how changes in media sentiment can precede shifts in financial market performance.
Developed by the Bank of Korea, the {{nofollow}}Korean News Sentiment Index (NSI) uses natural language processing to analyze news texts from the internet, aiming to gauge the overall economic mood. This index serves as a leading indicator, often predicting economic sentiment around two months in advance of equity earnings reports.
We see that the NSI (in green) fluctuates ahead of the broad market returns of Korean equities (in blue), with noticeable divergences and convergences over the years. For instance, a significant spike in the sentiment index in 2009 precedes a rise in equity earnings, suggesting that positive news sentiment was an early signal of improving economic conditions that eventually reflected in financial statements.
Currently, the NSI indicates an uptrend, suggesting a positive outlook on the economy that may soon be reflected in equity earnings. This makes the NSI a valuable supplementary tool for investors and analysts looking beyond traditional financial metrics and valuations to assess the market outlook for Korean stocks.
US reports slow job growth in March
US job growth slowed more than expected in April. Nonfarm payrolls increased by 175,000 jobs, the smallest increase in 6 months. In addition, revisions from the Bureau of Labor Statistics showed 22,000 fewer jobs created in March and February than previously reported. This jobs report falls far below the yearly average of 233,000 jobs and puts it more in line with the pre-pandemic mean which is 190,000.
Signs of a cooling labor market bring some optimism about the possibility of a sooner rather than later cut from the Federal Reserve.
Federal Reserve maintains rates amid inflation concerns
This chart displays the implied probabilities of future Federal Reserve interest rate levels based on Fed Funds futures trading, offering a snapshot of market expectations for US monetary policy across several upcoming FOMC meetings.
Notably, while the current rates are maintained at 5.25% to 5.50%, the market sentiment shifts significantly towards a lowering of rates by the end of 2024. This trend suggests a growing anticipation of an easing monetary policy, reflecting the Fed’s cautious approach to achieving sustained progress towards its 2% inflation target before considering any rate reductions.
The Fed's decision to keep rates unchanged, despite persistently high inflation above 3%, coupled with a strategic slowdown in balance sheet reduction, aims to stabilize the financial system and manage liquidity effectively, preventing potential shortages of reserves reminiscent of the 2019 quantitative tightening issues.
These policies highlight the Fed's meticulous approach to monetary adjustments, indicating a deliberate path forward amidst evolving economic conditions, which remains critical for global financial markets and has significant implications for developing nations and emerging markets facing pressures from a strengthening US dollar.
Surge in employment across most sectors post-pandemic
The Covid-19 pandemic has profoundly altered employment dynamics across various sectors globally. The above chart delves into the employment changes within the global large-cap market, comparing employee numbers in different sectors to those at the onset of the pandemic in Q1 2020.
It shows that nearly all sectors experienced an increase in employee numbers. Notably, the energy, consumer cyclicals and non-energy materials sectors have seen the most significant increases, each expanding their workforce by over 57%. The Industrials sector, which ranks second in terms of absolute employee count, has also seen a substantial rise, with a 53% increase.
However, not all trends are positive; the telecommunications sector has experienced a 13% reduction in personnel, highlighting the varying impacts of the pandemic across different industries.
The trade of the decade: owning macro volatility
{{nofollow}}Michael LoGalbo, CFA, Global Market Strategist, Macro & Multi-asset, New York Life Investments
In the 2010s, investors enjoyed a "peace dividend" from low geopolitical tensions. But this decade has seen a sharp rise in such risks, driven by US-China trade disputes, Russia's invasion of Ukraine and instability in the Middle East. These dynamics, exacerbated by climate change, energy security concerns, are reshaping market landscapes amid a global economic slowdown, underscoring the growing importance of geopolitical factors.
As a result, owning macro volatility might emerge as the strategic move of the decade. Our suggested macro volatility portfolio, which includes gold, oil and bitcoin, aims to mitigate geopolitical risks through two primary channels: adverse supply shocks and deflation.
Oil typically gains from supply disruptions while gold acts as a 'currency of last resort' during high-risk periods, dampening economic activity and heightening uncertainty. Bitcoin is included as a proxy for greater liquidity and risk-taking in a market flush with post-pandemic capital. Despite indicators of a slowing economy, liquidity continues to underpin investor risk-taking.
Federal Reserve takes a more balanced strategy
By {{nofollow}}Gareth Nicholson, Chief Investment Officer and Head of Managed Investments, Nomura International Wealth Management
Investor confidence in the Federal Reserve has decreased over the last six months, with terms like "policy error" and "Fed mistake" gaining traction. This skepticism raises questions about the Fed's ability to manage monetary policy effectively.
However, central banks have learned from past mistakes, especially those from the turbulent 1970s when inconsistent policies led to high inflation and unemployment. Since then, the Fed has adopted a more structured approach, creating buffers between policy rates and inflation.
In the current cycle, its rate hikes have brought inflation to manageable levels while keeping unemployment steady, signaling a more balanced strategy.
Inflationary pressures persist amid geopolitical tensions
By {{nofollow}}Jieyun Wu, Global Economist at Taikang Asset Management
Despite disinflation, inflation risks persist across developed countries due to high services inflation and ongoing geopolitical conflicts. This heatmap provides a global view of inflation trends in developed and emerging markets (DMs and EMs). Reflecting the past 12 months, it shows generally softer inflation globally. However, in DMs, the US and the Netherlands are seeing a marginal resurgence in inflation. Among EMs, Turkey and Russia face high inflationary pressures, while China’s inflation has recovered somewhat from deflationary levels.
Is the Eurozone inflation under control?
By {{nofollow}}Turnleaf Analytics
Eurozone inflation has touched a new record low since July 2021 coming at 2.4% as of end of April. But does the trajectory going forward look well within the 2% target of the ECB? This is a relevant question as the answer to it might help anticipate the next policy response by the ECB. By crunching hundreds of relevant macro and alternative data variables from Macrobond, Turnleaf Analytics's model projects a more volatile picture over the next year with inflation staying possibly above the 2% target most of the time (red line). Inflation markets paint a similar albeit more optimistic picture (green). Compared to the recent inflation prints from the US, the situation in the Eurozone seems more under control, although not fully so yet.
US manufacturing and services indices point to economic growth
By {{nofollow}}Frans van den Bogaerde, CFA, Economist, IFM Investors
This chart shows a detailed breakdown of the ISM manufacturing and services indices, key survey-based indicators of US economic activity. The latest data (for March 2024) show a softening in US private sector services growth, to 51.4 from 52.6 the previous month, though overall services output continues to expand (any reading above 50 as shown by the green boxes is an expansion).
Manufacturing activity, by contrast, substantially improved, rising 2.5 percentage points to 50.3 (the first expansion since September 2022).
As services account for a much higher proportion of US economic activity, it is a better indicator of growth. On a historical basis, however, the rate of growth suggested by both services and manufacturing is subdued – with both measures coming in at around their 20th percentiles relative to the last 20 years.
Analyzing fund flows in money markets
By {{nofollow}}Nik Bhatia, CFA, CMT, Founder, The Bitcoin Layer
This graph displays the dynamics within the money markets as funds are allocated across various instruments. The four metrics tracked here are: total money market fund (MMF) assets under management, outstanding Treasury bills, the Fed's reverse repo facility (RRP), and daily Secured Overnight Financing Rate (SOFR) volumes in the repo market. Tradeoffs between money market instruments are visible as investors (MMF AUM) transition between accessible investments: T-bills, private market repo (SOFR), and the Fed's interest rate floor for non-banks (RRP).
Currently, SOFR volumes are rising as primary dealers experience increased inventory due to Treasury issuance, while elevated T-bill supply is raising rates to divert funds from the Fed's RRP facility.
CPI surge challenges potential rate cuts
By {{nofollow}}Byron Gangnes, Professor Emeritus, University of Hawaii
US Inflation measured by the Consumer Price Index has picked up recently, putting interest rate cuts at risk. The CPI rose 0.4% in February and March, more than 5% on an annualized basis. These strong monthly changes have raised year-over-year inflation to 3.5%, the highest since September. This is far above the Federal Reserve’s long-run 2% target.
Part of the renewed inflation is coming from higher gasoline prices. But the Fed is unlikely to be concerned about this transitory component. Shelter inflation remains high but will ease as cheaper new leases are signed.
That leaves other non-energy services as the main concern. Measured on a three-month moving average basis—which highlights the most recent changes—these prices have risen above a 6% annual pace. This broad category includes many services, but the two most important recent contributors have been auto insurance and medical care.
The trailing three-month numbers provide striking evidence that CPI disinflation has been stalled for eighteen months. The Fed will hold off on rate cuts for a while longer.
Gold exports reveal diversification in Gulf energy surpluses
By {{nofollow}}Luke Gromen, CEO and Founder, FFTT LLC
This chart shows Swiss gold exports by destination, highlighting not only the well-recognized strong demand from Asia, but also the increasing exports to Persian Gulf countries. This is interesting because it implies a noteworthy shift: a growing portion of Gulf energy export surpluses, traditionally dominated by USD transactions, is being converted into gold, de facto.
Is gold still a haven amid geopolitical tensions?
Despite hopes of avoiding a global recession, geopolitical risks continue to impact economies and financial markets. As a result, safe-haven assets like gold attract broad interest.
We analyzed how gold prices responded in the months following significant geopolitical events. For example, after a recent incident where Iran attacked Israel, gold prices have not shown a consistent trend.
However, following a Hamas strike in October 2023, gold prices have generally trended upward. Ongoing geopolitical tensions are likely to continue influencing the demand for gold as a safe investment.
Japanese consumer sentiment remains strong
Consumer spending in Japan, particularly in retail sales, has been robust since early 2022. To analyze this trend further, we used the {{nofollow}}Macromill weekly consumer survey, which provides regular updates on Japanese consumer sentiment. The data show that, despite some fluctuations, sentiment has remained consistently above the average since 2022.
However, the index has yet to reach +1 standard deviation above the average. This means that while sentiment is positive, it hasn’t reached a level of optimism that would be considered exceptionally high. This could still signal encouraging prospects for Japan’s economic future and support the Bank of Japan’s efforts to normalize monetary policy.
Diminishing expectations for Fed rate cuts
The release of 'unexpectedly hot' CPI data earlier this month dispelled any doubts about the Federal Reserve cutting rates soon. Our chart shows that the market has lost hope for a rate cut at the next FOMC meeting in May, with a similarly low probability for June, at around 20%.
Initial expectations of three rate cuts in 2024, starting in March, has not materialized and now short-term market expectations are increasingly pessimistic. The probability of a rate cut by the end of the first half of the year is now less than 50%. However, a cut in the autumn still appears likely.
US government bonds remain uncertain
Inflation remains higher than expected, delaying expectations for interest rate cuts. This makes investments in government bonds more uncertain. We conducted a study on 10-year government bond returns in developed countries to look at how different bond yields affect bond values, considering factors such as duration and convexity. The resulting table can help investors understand how bond yield fluctuations may impact bond values.
US commercial real estate still challenging
US commercial real estate (CRE) continues to face significant challenges, even though many expect that a {{nofollow}}recession can be avoided. This is particularly important for {{nofollow}}regional banks that are quite exposed to CRE loans. To monitor the situation, we use weekly ‘back to work barometer’ indices that track how many people are going back to offices in major cities compared to before the pandemic. The latest numbers show that office occupancy is still much lower than it used to be, with rates about half of what they were before Covid-19.
Bitcoin ‘halving’ and impact on market prices
Roughly every four years, the number of new bitcoins that miners earn for adding transactions to the blockchain is cut in half. This event is known as “halving” and the next one is scheduled for 20 April. By reducing the number of new bitcoins, the supply decreases.
You might expect that with fewer bitcoins available, their price would go up. But when we look at what happened after the last three halving events, the results show varied impacts on Bitcoin’s price.
This chart tracks how Bitcoin’s price performed after the last three halving events. The outcomes were quite different each time, demonstrating that even with a decrease in supply, it’s hard to predict exactly how Bitcoin’s price will be affected.
Economic indicators from China show mixed signals
China’s key economic activity gauges, including the manufacturing Purchasing Managers Indexes (PMI) (both {{nofollow}}official and {{nofollow}}Caixin), expanded ahead of expectations in March. A complementary high-frequency indicator worth considering is road congestion in major cities such as Shanghai, Beijing, Shenzhen, and Guangzhou.
India’s economic resilience highlighted by robust manufacturing and power demand
The Indian economy has experienced high growth, as reflected in its {{nofollow}}manufacturing PMI, which reached a 16-year high in March. Another vital indicator, electricity demand, especially during evening peak hours, correlates strongly with GDP growth. In 2024, electricity demand across India has surged, approaching the upper bounds of historical fluctuations across the country, underscoring the economy's continuing strength. This pattern confirms the resilience and expanding capacity of the Indian economy, aligning with broader economic growth trends.
U.S. tech stocks bolstered by AI prospects
US mega-cap tech stocks have demonstrated strong performance, driven by optimistic Artificial Intelligence-related prospects and overall economic resilience. A closer examination of the earnings revisions of these tech giants relative to broader large-cap equities shows that, since 2020, whenever US tech titans' earnings revisions outpace those of larger equities (using z-scores, seen as the green color in the chart), the Nasdaq 100 tends to outperform the S&P 500 and vice versa.
Currently, earnings revisions for these top tech companies are better than broader large large-caps, suggesting that the strength in US big tech stocks is likely to continue.
Sectoral shifts in U.S. REITs highlight economic transformation
The US REITs industry has experienced significant shifts since the pandemic, with the office sector seeing a marked decline due to ongoing challenges in persuading employees to return to physical office spaces. The telecommunications sector also shrank. Conversely, the industrials and self-storage sectors have grown, signaling a rebound in these areas of the economy following the pandemic.
The data center sector has also grown considerably, likely driven by the surge in demand for AI-related technologies. These trends reflect broader economic shifts towards digital and storage solutions post-pandemic.
Examining long-term market trends amidst economic stability
This analysis of US stock markets since 1935 highlights the cyclical patterns of bull and bear markets within the context of longer-term secular trends. It shows that a cyclical bear market often follows around seven years after the onset of a secular bull market.
As the US economy remains robust, current trends suggest that it could be heading for a new cyclical bear market if economic growth cannot maintain its current pace. Understanding these long-term patterns is helpful to inform investment strategies and economic forecasting.
Global inflation dynamics: A shift from hyperinflation to deflation
In recent years, the focus on inflation has shifted from high inflation rates to stabilizing inflation at acceptable levels. This analysis contrasts the extremes of hyperinflation, where rates exceed 10 per cent, with deflation scenarios in which inflation rates are negative. While hyperinflation has become less prevalent, from affecting nearly half of global economies to just 15 per cent, deflation is on the rise, with six per cent of countries seeing reductions in consumer prices compared to a year ago.
These trends are critical for understanding the global economic landscape and the varying fiscal challenges countries face.
Inflation pressures delay Fed rate cuts
This chart examines the projected rate cuts by the Federal Reserve for 2024. Initially, the Fed anticipated three cuts in December, while market expectations suggested a more aggressive six cuts throughout the year.
However, with the latest U.S. consumer price data showing a continued increase in March, particularly in gasoline and rental housing, financial markets are now adjusting their expectations. The likelihood of rate cuts is being pushed back, with a delay until at least September now anticipated.
Both the Fed and market participants will continue to closely scrutinize economic and inflation data to gauge the timing and necessity of rate adjustments.
Beneish M-Score highlights risks in emerging markets
The Beneish M-Score is a mathematical model that employs various financial ratios to identify companies likely to have manipulated their earnings. Created by Professor M. Beneish in 1999, it serves as a prevalent tool for detecting fraud. A score above -1.78 indicates potential manipulation of a company's financial statements.
Macrobond/Factset Equity Factor Aggregates (EFA) offers the Beneish M-Score for over 100 countries. In today's demonstration, we focus on a chart that highlights 18 emerging markets. Our analysis shows that two countries, Argentina and Turkey, have recently exceeded the critical threshold, suggesting potential manipulation in their financial reporting. Both countries are currently grappling with severe economic challenges, which may be influencing these findings.
Moreover, Egypt and Hungary have recently exceeded the upper edge of their interdecile range (10-90 percentiles). While they have not crossed the >-1.78 threshold, this may be a worrying upward trend.
Brent oil prices reach new highs due to geopolitical tensions and production cuts
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The Brent spot price has surged to its highest level since last October, driven by three pivotal events: escalating tensions in the Middle East, Ukrainian drone attacks on Russian refineries, and the anticipation that OPEC will maintain its production cuts.
These geopolitical factors have propelled Brent oil futures to multi-year highs, as illustrated by the red line on the chart. Remarkably, current futures prices have exceeded those observed during the early 2022 price surge.
This upward trajectory in Brent oil prices is concerning for global markets, signaling potential increases in fuel costs for consumers this spring and summer.
Commodities remain low compared to the S&P 500 despite Brent price surge
Despite the recent surge in the Brent spot price, commodities remain historically low compared to the S&P 500. This analysis highlights the ratio between the S&P GSCI Commodity Index and the S&P 500. Three distinct peaks stand out, indicating periods when commodities were relatively expensive compared to the S&P 500: during the 1973/74 oil crisis, the 1990 Gulf War, and the 2008 global financial crisis.
Currently, the scenario is inverted, with commodities being relatively cheap compared to the S&P 500. An examination of deviations from the historical average reveals that such conditions were previously observed only before 1973, during the tech bubble, and now. This period also marks the longest stretch below the one standard deviation band. Unlike past instances, the ratio is now at an all-time low.
March CPI data shows persistent inflation, influencing Fed's rate decisions
US inflation appears to be stabilizing around 3%, but recent data suggest persistent pressures. This analysis delves into the CPI basket and the price movements of its individual components. Roughly 38% of the items have maintained their price levels or experienced a decrease compared to the previous year.
However, 36% of the items have seen an annual inflation rate exceeding 3%. With consumer prices increasing more than expected in March, financial markets now anticipate that the Federal Reserve might delay interest rate cuts until September. The mix of ongoing high inflation and a robust job market could influence the Fed's monetary policy decisions in the coming months.
US labor market shows strength amid tight conditions and rising jobless claims
The US labor market has demonstrated resilience, as evidenced by recent nonfarm payroll figures exceeding expectations despite slight increases in the unemployment rate. However, this 3.5–4% unemployment rate range is among the lowest recorded in recent decades. The labor market remains tight, with job vacancies outnumbering unemployed individuals.
Still, the impact of previous monetary tightening is anticipated to unfold over time, potentially affecting economic activity and employment adversely. To gauge job market health across states, we've created an indicator based on the ratio of states with increasing or decreasing continuing jobless claims. Historically, when all states have experienced rising jobless claims (tracked by a 12-month moving average), the unemployment rate has escalated, often signaling a recession. Currently, the indicator suggests that higher jobless claims across states have not reached 100%, having declined from above 95%. This may underscore the US labor market's resilience.