By Michael McKeown, CFA, CPA - Chief Investment Officer
There is a lot going in in the U.S. economy and financial markets. We boiled it down to four charts of interest to us today.
Over the last 15 years, small cap stocks traded at a premium to large caps. This has generally been the case throughout history, as smaller companies can grow earnings faster and thus deserve a premium price-to-earnings ratio. The exception was the tech bubble in the late 90s and early 2000s when the mania gave large caps a huge premium to small caps. The spread for the last 15 years has averaged about 4 points, but today its at zero. Investors do not have to pay a premium to own U.S. small caps for the first time in a long time. Small caps really traded richly from 2014 through most of 2018 and finally look more reasonably priced.
Here are the top ten import categories for goods into the U.S. Interestingly, automobile related categories make up two of the top ten and 40% of the total value of imports on this list at $550 billion. The list is relevant with the phrase ‘trade war’ sticking around for the last 16 months. It seems to be with us for a secular time frame as a core of this administration’s strategy.
In two of the last four the four months, U.S. payrolls increased by less than 100,000. This is the lowest four-month moving average in job growth in seven years. The 100k to 150k level is a magic level because that’s what economists estimate the U.S. needs just to generate just to keep up with the growing demographic of job seekers. Is this a blip or a sign of a change in trend?
Below we have a seasonal chart of the ten-year treasury yield. It takes the previous years since 2011 and shows the highest level reached on a given day, along with the lowest and average. So far, the fall of the 10-year Treasury yield in 2019 was 70 basis points. The yield went from 2.78% to 2.08%, which hardly anyone expected. The speed and magnitude of the change in yield could mean that we have seen the bulk of the move year-to-date.
The other amazing thing about the above chart is how interest rates over the past 9 years have been in a range of roughly 1.5% to 3.5%. Despite the calls about ‘printing money’ and runaway inflation, these forecasts were simply wrong.