Market Update in Charts
By the close today, the Dow rose 1.2% for the week, the S&P 500 was down 1.6%, and the Nasdaq Composite lost 3.1%. The Dow Jones Industrial swung in a range of 1,300 points on Thursday, the first time it has ever moved that much in a day, according to Dow Jones Market Data.
The one-week performance of the sectors was not pretty but notable in that Energy is not alone in the green. Even though Health Care and Consumer Staples names have been beaten up plenty this year, their strength this week might be a small hint that investors are finally finding these "recession proof" sectors cheap and compelling.
Group think is happening in the markets. We discussed correlation in our quarterly newsletter. Following along that thread, some 60% of stocks have been moving together in the last 30 days, indicating that the big picture data about the economy trumps importance about an individual company's fortunes.“Markets are being chased all together, which is rare,” said Chris Murphy, co-head of derivatives strategy at Susquehanna.
Reiterating the correlation of stocks and bonds, as we did last week, it is highly unusual for both asset classes to turn in similar performance numbers. During Q1 2022 and Q3 2022 stocks and bonds were within 1% return of each other.
Holdings in Money Market Mutual Funds, think "cash" in your investment portfolio, jumped at the start of the pandemic and only briefly dropped in 2020, even though rates stayed right around zero for two years. Now with returns rising with the Federal Funds rate increases, investors are content to keep allocations at historically high numbers.
The U.S. deficit, the difference between what we take in and what we spend, is shrinking. Things are looking more like 2019, which is an improvement. Credit goes to more income, primarily from higher tax collections, and falling spending now that pandemic-relief is ending for most programs.
The D Word The other "D" word besides deficit is debt. The U.S. debt load, which is the cumulative amount we have borrowed to fund our deficit spending, is over $31 trillion. Last year it was "only" $28 trillion. While inflation helps since it reduces the real value of debt, the overall amount is only going up. Per the U.S. Debt Clock, this averages out to $93,000 per citizen and $247,000 per taxpayer. While not an apples-to-apples comparison, imagine that the average family spent like Uncle Sam. This chart tells it all.
So as we continue to issue debt, the marketplace is becoming tougher for us. China, now a seller and not a buyer, has been reducing its holdings of U.S. debt to under $1 trillion. Other buyers are also backing away or forcing the U.S. to lift the amount of interest it is willing to pay. Japan is now the largest sovereign holder and most of the debt is held by us at home via our pension, banks and mutual funds.
This is the last guy who paid off all of our debts, with interest, in January 1835. President Andrew Jackson was only in office two more years and the idea of being debt-free left with him.
The Every-Five-Years Party
The big event is upon China this weekend as President Xi Jinping kicks off the Communist Party congress, the once-in-five-years event that will see him elected to an unprecedented third term. This year was intended to be one of calm in order for Xi to underscore how well China is doing under his confident and strong brand of rule. It has been anything but with repeated closures due to the zero-Covid policy, lobbed missiles in the general direction of Taiwan, a mortgage-bank-and-real-estate crisis, and rough relations with the West, to name a few issues.
Xi's speech on Sunday will be closely watched and analyzed as he affirms a tighter grip on control. In the last 10 years he has filled the government with layers of loyal lieutenants. He has beefed up the military and cracked down on dissension, speech and personal liberties - for example, he is known to hate the video game obsession of young people, barring playing during school days and limiting its use during the weekends.
What is next is certainly more acrimonious relations with the rest of the world. The Economist points out that China is weaker than it appears, in part due to its obsession with itself and self-control. "The West’s best course is to stand up to China where necessary, but otherwise allow collaboration. Restrict exports of the most sensitive technology, but keep the list short. Resist China’s attempts to make the global order more autocrat-friendly, but avoid overheated martial rhetoric. Welcome Chinese students, executives and scientists, rather than treat them all as potential spies. Remember, always, that the beef should be with tyranny, not with the Chinese people. It will be a hard balance to strike. But handling the most powerful dictatorship in history was always going to require both strength and wisdom."