CAMS Weekly View from the Corner - Week ending 6/21/24
June 24, 2024
It may be hard to believe but half of 2024 is all but in the books. In light of this we thought it timely to take a general look around and briefly revisit some topics that we had delved into in recent weeks and months to get a mid-year view as we move toward the second half of this year.
In addition, in light of the lining up of the calendar relative to the 4th of July in conjunction with various commitments these editions will be MIA from your inbox until mid-July at which time we will be sharing views as the second half of 2024 unfolds.
The second half offers an interesting cross-current of large macro themes of which some are shared below so upcoming months should prove interesting and telling. This is a good time to take a little macro inventory if you will.
Retail Sales
This past week retail sales were updated which informed us little has changed. That is, when adjusted for price inflation the results continue to be less than impressive.
It is important to keep in mind when operating in price inflation eras that a key driver of overall spending is the price inflation itself. A way to clear out the price inflation noise in order to get a sense of what is occurring underneath the price inflation “growth” is to adjust retail sales growth by the price inflation growth rate.
This gives us the “real” retails sales growth rate or said differently, the price inflation adjusted growth rate.
Above is a look at the year-over-year growth rate for retail sales after adjusting for the price inflation growth rate via the Consumer Price Index. We date this back to the beginning of this price inflation era circa early 2021.
In a recent edition we shared the above style via a bar chart whereby each bar represents a month depicting its growth rate, or lack thereof, compared to a year previous.
Our red rectangle identifies how the price inflation adjusted retails sales growth rate has been posting mostly negative growth rates. Our red arrow denotes last week’s update which notes little has changed relative to the highlighted behavior of the previous two-plus years.
Retail sales, when adjusted for price inflation continue to be weak which historically is a harbinger of downstream economic issues.
The aforementioned second half of 2024 will continue to fill in this storyline which will be interesting to monitor (if the above reality continues to unfold) as to whether the broad economic landscape can remain in growth mode.
Stock Market
In a couple of somewhat recent editions we opened up the topic that we have been entertaining in-house post-2022’s market downturn. That is, are we in a true bull market?
We suspect the question can lean toward lunacy when offering to a casual observer of markets but the behavior of the stock market itself, or more accurately, the behavior of collective market participants is what has prompted our question along the path.
The succinct description of this is very simple: Historically, bull markets are very strong upward trending animals that leave little room for questioning their strong and broad stock market trend.
For this one, post 2022, it is the broad part of the equation that is notably missing in action.
Large swaths of the stock market have not participated in this post-2022 market upturn. True bull markets do not display this behavior. They routinely set new all-time highs across many stock market indices. This has not been the case post-2022.
This is why we offer it is not our opinion of such but rather our focused observation of participate behavior that leaves the question hanging in the air. To this thought we offer an interesting and on-going stock market reality.
Above depicts the price index for the S&P 500 and the S&P 600 indices. The 500 version represent large companies and is well recognized. The 600 version represent small size companies. These are typically referred to as “large and small caps” speaking to the general market capitalization of the companies in each index.
The timeframe depicted in the chart above is for 2024 year-to-date.
With an initial look at the chart a kneejerk reaction would be to ask what two different markets are being displayed. Realizing both are mainstream stock market indices nearly defies logic - in particular when assuming a full blown bull market is underway. Again, this is not bull market behavior historically speaking.
Price Inflation
Price inflation has been issue number one of which we have dedicated more editions to than any other topic both in 2024 as well as in recent years.
Above is a decade chart of the well recognized Consumer Price Index depicting a year-over-year growth rate.
The stand-out issues is first highlighted by our red horizontal line. This identifies that even the highest price inflation growth rates prior to the 2021 launch point of this price inflation era remain lower than our lowest point in the previous year as identified by our red circle.
A year ago it was a foregone conclusion that the then down trending price inflation growth rate would continue its trend down to the Fed’s 2% target level. We had shared endless editions questioning that assumption. With the most recent update we continue to be in a stubborn 3% range – far north of the Fed’s 2% target.
The overriding question that we continue to ask is will this be able to move notably south of the 3% range without an economic recession occurring simultaneously. History offers no. Time will inform but it does not look favorable that we will put this price inflation era to bed while simultaneously experiencing on-going economic growth.
Wages
Wage growth rates during this price inflation era continue to underline the view that what you make matters little relative to the actual purchasing power of said wages.
This is a moot point in non-price inflation eras but once in such an era the price inflation changes and challenges many views and rekindles old societal experiences. It has been awhile since the U.S. was in a recognized price inflation era and with this current era it is eliciting societal views of decades past.
Above is a decade chart of year-over-year wage growth rates adjusted to the growth rate in price inflation via the CPI.
Our red box highlights the challenge of recent years as a large section of our box displays negative wage growth rates when factoring in price inflation.
While recent months have displayed a positive inflation adjusted wage growth rate the level is marginally positive and far from making up for the two years of negative growth rates.
This feedback loops to our first chart where we adjusted retail sales for price inflation and noted the consistent negative growth of retails sales after price inflation is accounted for. The everyday household is struggling on the inflation adjusted wage growth rate which spills over to the consumer within and shows up in the broad retail sales numbers.
It’s a Mid-Year Wrap
There are numerous other measures we could share but the above gives a general landscape view of our macroeconomic scene as well as the general storyline for the stock market. We think of this as a halftime assessment if you will as we prepare for what should be a very interesting and potentially challenging back half of 2024.
We will share along the path and will pick back up mid-July.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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