TRG Fast Facts

By TRG Advisors on October 6, 2023

Weekly data-driven insights on the markets and economy

1. Yielding to Bonds

The S&P 500 fell again last week, losing -0.71% during the week and -4.52% for the month of September[i] as stock prices yielded to the rising odds for higher-for-longer rates, which make stocks look relatively less attractive. The market-implied probability that the target fed funds rate will be lower than its current 5.25%-5.50% range by next June fell to 13.7% from 47.7% during the month.[ii]

2. Bumpy Road Ahead

Congress averted a government shutdown this past weekend by passing legislation to fund the government through mid-November. It’s not smooth sailing yet – the House voted to remove its speaker, Kevin McCarthy, on October 3; this uncertainty is expected to cause volatility ahead of the mid-November funding deadline.[iii]

3. Gas Problems

U.S. oil prices ($90.4) have risen 13% in just one month and 35% since the low this year in March[iv] amid OPEC production cuts and relatively low inventories (about 4% below the five-year average for this time of year).[v] This helped S&P 500 energy companies gain 2.5% in September. Oil and gas prices are expected to moderate a bit by the second half of 2024 amid higher inventories and less vehicle miles traveled.[vi]

4. Moving Target

As of September 21, industry analysts in aggregate predicted that the price of the S&P 500 will rise 19.0% over the next 12 months, with only 10 stocks in the index having a median target price at the end of that period below their current price.[vii] Keep in mind, however, that the S&P 500’s actual return fell outside the high-low range of analysts’ estimates in nine of the 12 years between 2011 and 2022.[viii]

5. Good Looking Forecasts

Using artificial intelligence and machine learning models to score stock analysts’ faces for trustworthiness and dominance, researchers found that, among those who showed up in person to companies’ analyst/investor conferences, those who scored highest for these facial traits received a 15% incremental boost to the accuracy of their forecasts in the six months following a conference.[ix]

6. What’s Brewing?

The price for coffee, which Americans consume more of than tap water, in U.S. urban cities remains more than 20% higher than pre-pandemic.[x] A major driver has been the cost of imports, which have risen roughly 45% since the start of 2020, as, among other issues, Brazil, which provides 66% of U.S. imports, deals with the aftermath of severe frosts, high temperatures, and below-average-rainfall in 2021.[xi]

7. Houses of Blues

Recent surveys show Chinese households’ confidence hovering near record lows ― and for good reason. Property accounts for about two-thirds of household wealth in China, with more than 80% of households owning a home (vs. 65.9% in the U.S.[xii]), and residential property prices have fallen by at least -8% since their 2021 peak[xiii] and by as much as -20% in lower-tier cities. Also, youth unemployment rose to a historic high of 21.3% in June (vs. 8.6% in the U.S.[xiv]), before the government stopped publishing the data.[xv]

8. Ganging Up

If counted together, Mexican cartels are the fifth largest employer in the country and need to recruit between 350 and 370 people per week to avoid their collapse. Between 2007 and 2021, the number of homicides in the country increased by more than 300%, and researchers estimate that if current trends continue, homicides related to organized crime could increase 40% by 2027.[xvi]

9. Big Bones

The fossils of Barry the dinosaur, a 150-million-year-old, 16-foot-long Camptosaurus, will likely fetch as much as $1.3 million at an auction on October 20. Barry is in uniquely good shape, with 80% of his original bonds and 90% of his skull intact.[xvii] Yet, his estimated value pales compared to fossilized T. rexes Stan and Big John, who sold for almost $32 million and $7.7 million, respectively.[xviii]

[i] FactSet, total return as of September 29, 2023.

[ii] CME Group, CME FedWatch Tool, target rate probabilities for June 12, 2024 Fed meeting, as of September 29, 2023,  https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed September 30, 2023.

[iii] Warburton, Moira, “Kevin McCarthy ousted as House Speaker in historic vote,” Reuters, October 4, 2023, https://www.reuters.com/world/us/mccarthy-says-he-thinks-he-will-survive-leadership-challenge-us-house-2023-10-03/. Accessed October 4, 2023.

[iv] U.S. Energy Information Administration, Cushing, OK Crude Oil Future Contract 1 (Dollars per Barrel), as of September 26, 2023, https://www.eia.gov/dnav/pet/hist/RCLC1D.htm. Accessed September 29, 2023.

[v] U.S. Energy Information Administration, Monthly Energy Review, September 2023, https://www.eia.gov/totalenergy/data/monthly/. Accessed October 2, 2023.

[vi] U.S. Energy Information Administration, Short-Term Energy Outlook, September 12, 2023, https://www.eia.gov/outlooks/steo/. Accessed September 29, 2023.

[vii] Butters, John, “Industry Analysts Project 19% Increase in S&P 500 Price Over the Next 12 Months,” FactSet, September 22, 2023, https://insight.factset.com/industry-analysts-project-19-increase-in-sp-500-price-over-the-next-12-months. Accessed October 2, 2023.

[viii] Kevin DiCiurcio, Kevin, “In Market-Forecasting, Longer Horizons Help,” Vanguard, January 24, 2023, https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/market-forecasting-longer-horizons.html. Accessed October 2, 2023.

[ix] UCLA Anderson Review, “How a Stock Analyst’s Face Affects Their Earning Estimates,” February 15, 2023, https://anderson-review.ucla.edu/how-a-stock-analysts-face-affects-their-earning-estimates/. Accessed October 2, 2023.

[x] U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Coffee in U.S. City Average [CUSR0000SEFP01], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/CUSR0000SEFP01. Accessed October 2, 2023.

[xi] Angela Cantor, “Historic Coffee Prices Percolated after a Bitter Global Supply Crisis ,” Beyond the Numbers: Prices & Spending, vol. 12, no. 13 (U.S. Bureau of Labor Statistics, September 2023), https://www.bls.gov/opub/btn/volume-12/historic-coffee-prices-percolated-after-a-bitter-global-supply-crisis.htm. Accessed October 2, 2023.

[xii] U.S. Census Bureau, Homeownership Rate in the United States [RHORUSQ156N], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/RHORUSQ156N. Accessed October 2, 2023.

[xiii] Bank for International Settlements, Real Residential Property Prices for China [QCNR628BIS], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/QCNR628BIS. Accessed October 2, 2023.

[xiv] U.S. Bureau of Labor Statistics, Unemployment Rate – 16-24 Yrs. [LNS14024887], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/LNS14024887. Accessed October 2, 2023.

[xv]Dawson, Jeff, “Why Are China’s Households in the Doldrums?,” Federal Reserve Bank of New York Liberty Street Economics, September 27, 2023, https://libertystreeteconomics.newyorkfed.org/2023/09/why-are-chinas-households-in-the-doldrums/.

[xvi] Prieto-Curiel R, Campedelli GM, Hope A. Reducing cartel recruitment is the only way to lower violence in Mexico. Science. 2023 Sep 22;381(6664):1312-1316. doi: 10.1126/science.adh2888. Epub 2023 Sep 21. PMID: 37733856.

[xvii] Hendrickson, V.L., “After 150 Million Years, Barry the Dinosaur Makes Its Auction Debut,” Barron’s, September 18, 2023, https://www.barrons.com/articles/after-150-million-years-barry-the-dinosaur-makes-its-auction-debut-7eb19e1d. Accessed October 2, 2023.

[xviii] Planet Money, “A Million-Dollar Fossil, and Other Indicators,” NPR, September 22, 2023, https://www.npr.org/transcripts/1197954276. Accessed October 1, 2023.