Let's start by looking at interest rates. With both long- and short-term rates rising, the Yield Curve remains deeply inverted.

With yields higher for longer, the US Bond Market has now been in a drawdown for 47 months, making it the longest bond bear market in history.

Since early 2022, when yields started to rise, US Corporate Bonds have been down -8.57% while the S&P 500 is up +14.57%.

Over the past 30 years, the 60/40 portfolio has risen by +787.86%, slightly lagging the S&P 500.

With rising nominal rates and stable inflation expectations, Real Yields have been increasing.

However, Gold, which usually moves inversely to Real Rates, has also been rising.

Since the end of 2020, mortgage rates have risen more than other yields, leading to higher spreads to Treasury Bonds than during the Great Financial Crisis of 2008.

Home prices have kept rising despite high mortgage rates, and the average house now costs 8.17 times the average personal income.

Adjusted for inflation, Home Prices are higher than ever.

In its updated budget and economic outlook, the CBO expects Federal Debt to GDP Ratio to reach 122 percent in 2034, higher than at any point in history.

With mounting debt and higher interest rates, the CBO expects net outlays for interest to increase.
The report states: "In CBO’s projections, net interest outlays total $892 billion in 2024—surpassing discretionary outlays for defense this year—and rise to $1.7 trillion in 2034, nearly doubling over the period. Measured in relation to the size of the economy, those outlays grow from 3.1 percent of GDP in 2024 to 4.1 percent in 2034, at which point they would nearly equal projected outlays for Medicare. Since 1974, net outlays for interest have averaged 2.1 percent of GDP."

Let's examine the dynamics of the US stock market. In June, NVIDIA temporarily became the largest company in the world, surpassing Microsoft and Apple in market capitalization.

To illustrate how big these three companies have become: they now make up a record 21% of the S&P 500 index and, individually, are worth more than the cumulative value of the entire stock markets of Germany, France, and the United Kingdom.

These dynamics can be observed in multiple charts. For example, the Nasdaq Composite Index has been outperforming the broader and less tech-focused S&P 500 index.

Looking at US Stock Market Sectors over an 8-year time frame, only the Technology Sector has been rising in terms of relative strength. All other sectors have underperformed the market.

Cumulatively the Cyclical Sectors have been outperforming Defensive Sectors, and the ratio has reached its highest reading ever.

Further segmenting the US stock market, Large-cap Stocks have been outperforming small-cap stocks.

Similarly, the market-cap-weighted MSCI USA index (where larger companies get a bigger weight) has been outperforming the equal-weighted index.

Finally, looking at factors, Growth Stocks have continued to outperform Value Stocks.

The rise of NVIDIA, Microsoft, and Apple can also be seen internationally. Since 2008, US Stocks have been outperforming the aggregate rest of the world. As of June 28, 2024, the United States makes up 64.7% of the MSCI All Country World Index, which is weighted according to market capitalization.

Accordingly, Emerging Markets continued to underperform Developed Markets.

Looking at different Factor Indices for the MSCI World over the last 8 years, Quality, Buy Back Yield, and Momentum have led the market, while Enhanced Value, Volatility, and High Dividend Yield have lagged.

Looking at MSCI Country Indices over an 8-year time frame, the leaders are Denmark (driven by Novo Nordisk, which now makes up 71.56% of the index), Taiwan (driven by tsmc, which now makes up 50.14% of the index) and the United States (driven by NVIDIA, Microsoft and Apple).

Finally, looking at the Crypto market, Bitcoin and Ethereum rose leading up to the halving event on April 20, 2024, and have been stagnating since.

Relative to the rest of the Crypto market, Bitcoin Dominance has been stagnating at 55% for a couple of months now.

Ray Dalio and Neil Howe both developed frameworks that help explain some of the phenomena that we are currently observing, such as rising government debt burdens, the rise of right-wing parties in many countries, a growing wealth gap, rising extremism on both the left and the right, loss of trust in news media, and increasing external military conflicts. Here are some of their works that I am currently reading.

Ray Dalio with his articles on "How is the US Doing? The Big Dichotomies",  "Pick A Side And Fight For It, Keep Your Head Down, Or Flee", and "Do You Have Enough Non-Debt Money?"

Neil Howe with his Book "The Fourth Turning Is Here: What the Seasons of History Tell Us about How and When This Crisis Will End" and his "Trend Watch" podcast.

This Quarterly Chart Brief is made possible thanks to Cambria Investment Management.

Cambria’s Shareholder Yield ETF, SYLD goes beyond dividends to include buybacks and debt paydown, resulting in a fund portfolio that historically ranks highly on a metric referred to as shareholder yield. 
 
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