Every few months, I break the rhythm of my writing and present interesting charts that have caught my eye.
Here are some of my favorite charts, along with some thoughts about each one:
What Volatility?- If you've felt like the market has been going nearly straight up for the last year, your intuition is pretty good, as it has now been 355 (as of July 29)consecutive trading days without a one-day drop of 2% or more. There have been longer streaks, but one thing all previous streaks have in common is that they all came to an end, eventually. So, while this type of run is certainly enjoyable, investors should always be prepared for downside volatility to return. (Source: Bespoke)
Things mostly feel OK -With the markets and consumer net worth setting new record highs, it's no wonder that most people feel like they're "doing at least OK" financially speaking. Interestingly, while people seem to have a generally positive view of their finances, they feel quite differently about the broader economy, with just 22% feeling that the economy is in "good or excellent" shape. Obviously, with such a minority of Americans believing the economy is in good health, this feeling is more than just a political bias. We'll look at the state of the economy in the next chart to see if the economic reality is as bad as people think it is. (Sources: Consumer Net Worth: Reuters; Chart: Axios)
How is the economy doing? - The short answer is that it's been humming along for three years. As you can see in the chart below, every indicator commonly used to evaluate economic health has been moving up and to the right (this is a good thing) since the start of 2021, even outpacing inflation. Given the economic data, this disconnect between our economies and the national economy seems to be a pandemic holdover of "everything is terrible, but I'm fine," as previously noted. In reality, things continue to be quite good on the economic front, even if they aren't as good as they once were. (Source: Sam Ro)
Beware of the big brother – It's not all rainbows, puppy dogs, and unicorns. There are some areas of concern, government spending being the principal. The bigger government gets (it gets bigger by spending more), the more headwinds the economy faces. I realize it's not part of a popular narrative that bigger government is better, but the facts are the facts. As current spending remains elevated to historical norms, it will be a challenge for the economy to grow sooner rather than later.
The market continues to do market things - Despite the historic futility of forecasting, in December 2023, every significant investment house offered their prediction for where the S&P would stand at the end of 2024. Incredibly, as the S&P has now crossed 5,600, the market currently exceeds every single forecast offered. It's certainly possible that the market backtracks from here, but since many of these so-called experts now offer "revised estimates," I can't help but wonder what value these forecasters think they're providing to investors like us. We're probably best served to ignore them entirely. (Source: Charlie Bilello)
There is plenty-o-cash on the sidelines – Despite government headwinds, markets are reaching new highs and so too is cash on hand as money market funds have grown to more than $6 trillion. Thanks to higher interest rates, there's finally a benefit to holding cash, resulting in money market fund balances increasing by more than 30% ($1.5 trillion) since the start of the rate hiking cycle. This cash on hand provides investors with a nice safety net of sorts (and the ability to be opportunistic) for when volatility returns. (Source: Torsten Slok)
One of the greatest risks in your financial plan is letting the "noise" distract you from what's really important to achieving your long-term goals: near-permanent ownership of the great companies of the world.
It's just as the late Charlie Munger encouraged, "The big money is not in the buying and selling, but in the waiting." Like all wisdom, I don't expect this to change.
I hope you feel encouraged as we continue to work toward your most cherished financial goals. If you have questions about these charts or anything else, please reach out anytime.
Stay the course, my friends!