This table is an interesting comparison of housing affordability in some major developed countries. The left section shows the percentage of average disposable income needed to make payments on an average-priced home at current mortgage rates. In the US this is presently 23%. It averaged around 14% in the 10 years before COVID and was as high as 26% before the 2008 crisis. The other countries are mostly higher, meaning homes are/ were less affordable there.

 

 

The right section is enlightening, too. It shows the change needed to make homes as affordable as they were in the pre-COVID period. In the US, this would require home prices to drop 41% or incomes to rise 69% or mortgage rates to fall 4.3 percentage points. A combination of smaller changes might work, too, but a scenario in which home prices fall while incomes go up is hard to imagine. The conclusion seems to be that the 2010s were a uniquely golden opportunity to buy a home, and even more so for those who refinanced to lower fixed rates in 2020-2021.

 

The Largest Companies Rarely Stay on Top

 

Historically, the largest stocks have struggled to maintain their dominance. It doesn’t matter if the underlying business keeps chugging along. The biggest stocks almost always fall from the top of the heap. Below are the five largest companies by market capitalization in 2007 and their total investment returns since then as compared to the overall S&P 500 Index.

 

 

Tech stocks didn’t dominate the 2007 market peak. Instead, the leaders were “old guard” giants in oil, manufacturing, banking, and telecommunications. Microsoft was the only tech stock of the bunch… And it was also the only one that generated big gains.

ExxonMobil (XOM) and AT&T (T) have done OK since their days at the top of the market. But you’d have performed dramatically better by just buying an index fund.

Then there’s Citigroup (C) and General Electric (GE)…

If you held on to these stocks thinking that they were big, safe plays, boy was that a mistake. Nearly 16 years later, you’d still be sitting on catastrophic losses… And it’s hard to know if these companies will ever recapture their 2007 highs again.

This is a recurring theme in U.S. market history. It’s how American capitalism works…

New companies come out of nowhere and create new markets or find ways to dominate old ones. And the established businesses – the ones many once thought would last forever – suffer a slow death.

the key to finding stocks that can grow at astounding rates for long periods of time. These are the stocks that can turn even a small amount of capital into a huge treasure.

Let’s look at the companies that have done just that – built themselves into large, successful companies over time and rewarded shareholders handsomely in the process. I’ve analyzed the largest companies in the U.S. today, all with more than $50 billion in current market capitalization.

I ranked these blue chips based on how well their shares have performed over the past 30 years. (My analysis included some companies, like Tesla (TSLA), that were founded less than 30 years ago.) Below are the 10 best-performing stocks among that group…

 

 

The first thing that struck me is that this is an eclectic list of companies.

Sure, it contains some of the companies you probably expected, like Amazon (AMZN), Apple, and Microsoft. And a healthy number of them are technology companies. But beyond that, it’s a broad and diverse set of companies. It includes ones that are consumer-oriented – like Monster Beverage (MNST) or O’Reilly Automotive (ORLY) – and some that are business-to-business focused – like KLA (KLAC) and Nvidia (NVDA).

So outside of perhaps software or semiconductors, it’s hard to say that the best-performing companies over the past 30 years tend to come from one particular industry.

Two consistent themes run across these companies. And the combination of the two is what has made them home-run stocks.

Now let’s add one more column of data to the chart – the market capitalizations of these companies back in 1993 (or when they went public if it was after 1993)…

 

 

US Economy

 

  • The Treasury curve bear steepening continues, pushing the 10-year yield to a multi-year high.
  • Is the stock market signaling a trough in US leading economic indicators?

 

 

  • The full impact of the Fed’s policy tightening is yet to be felt.

 

 

  • Economists have revised their economic growth forecasts upward for 2023 and 2024.

 

 

  • The recent decline in stock prices and higher gasoline prices are weighing on consumer sentiment.
  • Economists have been upgrading their forecasts for next year’s housing starts.
  • But residential construction is facing headwinds this year.

 

 

  • While rents are down on a year-over-year basis, they continue to rise.
  • Despite soft demand, businesses are reporting an upturn in inflation
  • The Philly Fed’s non-manufacturing survey shows deteriorating sales
  • The region’s manufacturers expect a reacceleration in inflation
  • The August US PMI report from S&P Global showed growth stalling in services, and faster contraction in manufacturing. Both measures were below consensus estimates. The report suggests that a resurgence in economic growth is unlikely at this point.
  • The PMI report caused bond yields to drop and stocks to climb.
  • New home sales were robust last month, up 34% vs. last year.

 

 

Source: @economics   Read full article

 

  • Here are the revisions by sector.

 

 

  • Markets are pricing in a soft-landing scenario.
  • The trend is clear.

 

 

  • Durable goods orders dropped sharply last month, …

 

 

  • The Atlanta Fed’s GDPNow model is tracking the Q3 growth at nearly 6% (annualized). This measure is in sharp contrast with the PMI indicators.

 

 

Market Data

 

  • Sentiment deteriorated sharply in recent days.
  • Energy shares have been outperforming.

 

 

  • But the rout in alternative energy shares has accelerated.

 

 

  • The market didn’t cheer the Q2 earnings beats the way it typically does.

 

Source: Morgan Stanley Research; @AyeshaTariq

 

  • Hedge funds have been trimming their equity exposure.

 

 

  • A model from Oxford Economics suggests that profit margins will decline from here, …

 

 

  • … pressuring earnings.

 

 

  • Here is the percentage of S&P 500 members trading above their 50-day moving averages.

 

 

  • The S&P 500 expected dividend yield is well below the 10-year Treasury yield
  • The S&P 500 hit resistance near 4450.

 

 

Great Quotes

 

“The only thing worse than not being talked about is not being talked about.” – Oscar Wilde

 

Picture of the Week

 

Shark-fin Cove, Davenport, CA

 

 

 

All content is the opinion of Brian Decker