1. Record-Breaking Year for US Equities
The US stock market continues its historic run in 2024, with the S&P 500 delivering a 24% total return year-to-date - four times higher than the average year at this point. The index has reached 47 all-time highs this year, averaging more than one per week. This exceptional performance is driven by both earnings growth (S&P 500 TTM operating EPS up 8%) and multiple expansion, with the P/E ratio climbing 27% to 25.8x - the highest since June 2000.
Key Takeaway: 2024 is on pace to be one of the strongest years ever for US equities, though valuations are stretched.
2. The Great Bond Market Drought
The bond market's struggles persist as the Bloomberg Aggregate Bond Index remains 8% below its summer 2020 peak. At 50 months, this marks the longest drawdown in bond market history. Despite Fed rate cuts, long-term rates continue to rise, with the 30-year yield reaching 4.49%. Paradoxically, credit spreads are at their tightest levels since 2007 for high yield (2.89%) and 2005 for investment grade (0.83%).
Key Takeaway: Bonds face continued pressure from rising long-term rates, though credit markets signal strong confidence.
3. Housing Market's Affordability Crisis
The US housing market presents a stark contradiction: home prices continue hitting new records (Case-Shiller National Index up 5% year-over-year) while existing home sales near their lowest levels since 2010. The median household income required to purchase the median home ($120,000) now exceeds actual median household income ($85,000) by over 40%, creating the most unaffordable housing market in history.
Key Takeaway: The housing market faces a severe affordability crisis despite strong price appreciation.
4. Gold and Bitcoin's Historic Rally
In an unprecedented development, Bitcoin and Gold are leading all major asset classes in 2024. The Gold ETF (GLD) is having its best year ever, up over 31%, while Bitcoin has gained 63% year-to-date. This performance comes after January's approval of 11 spot Bitcoin ETFs, though prices have moved sideways since reaching $73,000 in March.
Key Takeaway: Alternative assets are outperforming traditional investments in 2024.
5. The Dollar's Resilience
Despite persistent predictions of its decline, the US Dollar maintains its strength against major global currencies, particularly the Euro and Yen. This strength is supported by higher real central bank rates (2.5% vs. 1.5% in Eurozone and -2.3% in Japan) and stronger economic growth (3.0% vs. 0.6% in Eurozone and -1.0% in Japan).
Key Takeaway: The Dollar's dominance continues, backed by superior rates and growth.
6. Tech Sector's Rotation
After surpassing its March 2000 relative performance peak in July, the Technology sector has undergone a significant rotation. It stands as the only S&P 500 sector showing negative returns since July 10, while Small Caps and Value stocks have outperformed their Large Cap and Growth counterparts.
Key Takeaway: Market leadership is shifting away from technology stocks.
7. Consumer Health Indicators
Retail sales have declined 0.9% over the past year after adjusting for inflation, suggesting mounting pressure on consumers. However, the labor market remains resilient with a 4.1% unemployment rate (below the 5.7% historical average) and wage growth outpacing inflation for 17 consecutive months.
Key Takeaway: Mixed signals on consumer health, though labor market strength provides support.
8. Inflation's Persistent Challenge
Core CPI has run above 3% for 41 consecutive months, the longest such stretch since the early 1990s. However, some relief appears in energy prices, with gas prices down 11% year-over-year, contributing to broader inflation moderation.
Key Takeaway: Inflation remains elevated but shows signs of easing in certain sectors.
Next week, we'll be watching the Federal Reserve's rate decision, Q3 GDP data, and continued earnings reports from major technology companies. Stay tuned!
