Political Calculations
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12 July 2024

If you invested $100 at the beginning of 1970, how much would it be worth at the beginning of 2024?

The answer to that question depends on how you invested that $100. Would you buy gold? What about stocks or corporate bonds? Would you play it safe and go for Treasury bonds? Or maybe buy some real estate? How about if you found an investment that would keep up with inflation? What would $100 worth of 1970's dollars be worth after all that time?

Visual Capitalist's Dorothy Neufeld considered each of these options and charted the results. Here they are:

These results are based on data collected by NYU's Aswath Damodaran, which is a tremendous resource. Unless you have your own personal Wayback Machine, or are the beneficiary of some really savvy investing by someone who decided to put $100 to work in an investment in 1970 rather than spend it on 1970's consumer goods, the results shown in the chart are as close as you'll get to the answer to the question we asked at the beginning.

Here's Neufeld's discussion of the results she obtained by hypothetically investing $100 in 1970 through the end of 2023:

As we can see, a $100 investment in the S&P 500 (including reinvested dividends) in 1970 would be worth an impressive $22,419 in 2023.

Not only were U.S. stocks the top performing major asset class, they outpaced other investments by a wide margin. Consider how a $100 investment in corporate bonds would have grown to $7,775 over the period, or 65% lower than an investment in the S&P 500.

When it comes to gold, a $100 investment would have been worth $5,545 by 2023. During the 1970s and 2000s, gold boomed amid bouts of inflation and a falling U.S. dollar. By comparison, the S&P 500 saw much lower returns over these decades.

Real estate, another safe haven asset, grew on average 5.5% annually since 1970, with the highest gains seen in the decade through 2020. It’s worth noting that these numbers are from the Case-Shiller Home Price Index, which is based on purely price changes over time.

Given that real estate is a unique asset class, this doesn’t necessarily illustrate the returns that homeowners actually receive, factoring in leverage, property taxes, insurance, and other expenses. From this price perspective, a $100 investment would have grown to just $1,542 by 2023 due to slower price growth through the 1980s and 2000s weighing on overall gains.

The result for "cash" is the result of investing $100 in 3-month U.S. Treasury bills and continuously rolling the investment over all this time to keep up with inflation. If you had really kept it as cash and say stuck a $100 bill in a library book that you didn't open again until the beginning of 2024, we're afraid that $100 bill from 1970 will only go as far as $100 in 2024's dollars would if you went out and spent it.

But what if you decided to take that $100 and restart the experiment for real in 2024? How would you invest $100 today? What do you think your investment will be worth in, oh say, 2078?

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11 July 2024
Smoke comes out from industrial factory chimney Photo by Weichao Deng on Unsplash - https://unsplash.com/photos/smoke-comes-out-from-industrial-factory-chimney-KKFKrOu3BVc

After stalling in April 2024, the rate at which carbon dioxide is increasing in the Earth's atmosphere resumed rising in June 2024.

The June 2024 increase follows May 2024's increase in exports to the world from China, pointing to increased economic output by China's export industries. Since these industries are primarily powered by coal-fired electricity generation, their increased output contributes to increased carbon dioxide emissions.

And since China is, by far an away, the world's largest producer of carbon dioxide emissions, the country's economic activity shows up in the Earth's atmosphere. Increased emissions from China diffuse into the Earth's air and show up several weeks later at the atmospheric carbon dioxide concentration data collected at the remote Mauna Kea Observatory. The pace of accumulation is measured by the trailing twelve month average of the year-over-year change in the concentration of CO₂. The following chart shows how that measure has fluctuated in conjunction with major global economic and environmental events from January 2000 through June 2024:

Trailing Twelve Month Average Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 2000 - June 2024

News reports indicate China's exports continued rising rapidly in June 2024, which suggests the increase in the rate at which CO₂ is being added to the Earth's atmosphere seen in June 2024 will continue. That increase comes as China's exports boosted their output ahead of new tariffs imposed by the Biden administration that will take effect in August 2024.

The effect of the tariffs on China's economic output and carbon emissions will be something to watch this fall.

References

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [Online Data]. Updated 5 July 2024. Accessed 10 July 2024.

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10 July 2024
Logistics, Truck, Freight Train, Shipping image by Gerd Altmann on Pixabay - https://pixabay.com/illustrations/logistics-truck-freight-train-877567/

The diverging trends for the United States' international trade continued in May 2024. The nation's trade with China was flat to lower, with the trailing twelve month average of the total value of goods exchanged between the two nations coming in lower. Meanwhile, the recovery in trade between the U.S. and the rest of the world continued, although at a slow pace.

For China, the level of trade between the two countries is expected to fall in the months ahead as a new series of the Biden administration's anti-free trade tariffs are set to take effect on 1 August 2024. The Biden administration has not announced any new anti-free trade tariffs with the rest of the world beyond those it already announced and implemented in 2023.

Two charts visualize the trends we've summarized above. The first chart shows the combined value of goods traded between the U.S. and China from January 2017 through May 2024.

Combined Value of U.S. Exports to China and U.S. Imports from China, January 2017 - May 2024

The gap between the trailing year average of US-China trade and its post-pandemic recovery counterfactual based on how trade between the two nations recovered after the 2008-09 Great Recession widened to $16.9 billion in May 2024. The cumulative loss of trade between the two countries since October 2022 stands at $206 billion.

The second chart shows the total value of goods exchanged between the United States and the entire world, both with and without the portion of goods exchanged with China.

Combined Value of U.S. Exports and U.S. Imports to World (With and Without China) Trailing Twelve Month Averages, January 2017 - May 2024

A slow recovery in trade between the U.S. and the rest of the world excluding China has been underway since January 2024.

References

U.S. Census Bureau. Trade in Goods with China. Last updated: 5 July 2024.

U.S. Census Bureau. Trade in Goods with World, Not Seasonally Adjusted. Last updated: 5 July 2024.

Image credit: Image by Gerd Altmann from Pixabay.

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09 July 2024
S&P 500 2024-Q2 Market Cap $47.83 Trillion

The market capitalization of the S&P 500 (Index: SPX) grew by 4.2% during the course of the second quarter of 2024. The index ended 2024-Q2 with a market cap of $47.83 trillion according to Standard and Poor.

The Top 10 stocks within the market cap-weighted index together accounted for 35.8% of its total valuation. That share is up from the 32.5% recorded at the end of 2024-Q1 and is also up from the 30.9% share that the S&P 500's Top 10 stocks held at the end of 2023.

The biggest market cap gain within the index belongs to artificial intelligence computer chip maker Nvidia (NASDAQ: NVDA), which rose from third to second-place during the preceding three months. That change however is somewhat misleading because for a brief moment about two weeks before the end of the quarter, NVDA became both the largest company within the S&P 500 index and the world. The company lost over $300 billion worth of its market valuation to drop back into second place behind Microsoft (NASDAQ: MSFT).

The following chart shows the relative shares of the top 10 stocks in the S&P 500 at the end of the second quarter of 2024. Other than their ranking, there was no change in the membership of the ten most valuable companies within the index.

S&P 500 Market Capitalization Snapshot on 28 June 2024

Here are the market capitalizations of each of the S&P 500's top ten component firms at the end of Friday, 28 June 2024:

  • Microsoft (NASDAQ: MSFT) $3,465,750,695,214 (7.25%)
  • Nvidia (NASDAQ: NVDA) $3,170,505,200,450 (6.63%)
  • Apple (NASDAQ: AAPL) $3,167,396,346,221 (6.62%)
  • Amazon (NASDAQ: AMZN) $1,846,420,269,779 (3.86%)
  • Meta Platforms (A) (NASDAQ: META) $1,152,810,976,881 (2.41%)
  • Alphabet (A) (NASDAQ: GOOGL) $1,116,269,982,551 (2.33%)
  • Alphabet (C) (NASDAQ: GOOG) $935,143,352,279 (1.96%)
  • Berkshire Hathaway (B) (NYSE: BRK.B) $768,365,279,990 (1.61%)
  • Eli Lilly & Co. (NYSE: LLY) $754,112,379,060 (1.58%)
  • Broadcom (NASDAQ: AVGO) $729,672,001,962 (1.53%)

The remaining 493 firms of the S&P 500 index account for 64.2% of its total market valuation. Their collective market cap declined over the quarter, falling from $30.96 trillion to $30.72 trillion. All the net increase in the market capitalization of the S&P 500 is effectively concentrated within its top ten components.

References

Standard and Poor. S&P Market Attributes. [Excel Spreadsheet]. 28 June 2024. Accessed 1 July 2024.

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08 July 2024
An editorial cartoon of a Wall Street bull reading a newspaper with the headline 'BAD NEWS IS GOOD 4 STOCKS 4 NOW'. Image generated with Microsoft Copilot Designer.

The S&P 500 (Index: SPX) had a strong week to start the calendar quarter for 2024-Q3. The index climbed nearly two percent from the previous week's close to end the trading week at 5,567.19, a new record high.

Unfortunately, it was one of those weeks where bad economic news for the U.S. led to the rise of stock prices. The combination of rising unemployment numbers that are close to triggering former Fed economist Claudia Sahm's recession indicator with signs of slowing real GDP growth.

The latter was signaled by the Atlanta Fed's GDPNow tool's forecast of annualized real GDP growth rate during 2024-Q2, which dropped to +1.5% from the +2.2% growth projected a week earlier. The GDPNow tool's forecast for real GDP growth rate in 2024-Q2 has more than halved over the past two weeks.

So how does that bad news translate into rising stock prices? The bad news increases the probability the Federal Reserve will act to cut short term interest rates in the U.S. during the now current quarter of 2024-Q3. Investors had been focusing on 2024-Q4 in recent weeks, but shifted their forward-looking focus toward the nearer term quarter of 2024-Q3 during this past week.

That's important because the CME Group's FedWatch Tool forecasts the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3), when the tool anticipates the Fed will start a series of 0.25% rate cuts on that date that will take place at 6-to-12 week intervals well into 2025.

The change in how far forward investors are setting their investing time horizon then accounts for the reaction of stock prices to this information. According to the dividend futures-based model, stock prices will rise if the expectations for the rate of change of dividend growth in the quarter to which they fix their forward-looking attention is more positive than what is expected for the quarter in which they had been focusing upon. The latest update to the alternative futures chart shows that change, with the trajectory of the S&P 500 now closely aligned with where the model predicts the index would be when investors are closely focused on 2024-Q3.

Alternative Futures - S&P 500 - 2024Q3 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 5 Jul 2024

For her part, Sahm is calling for the Federal Reserve to start cutting the Federal Funds Rate sooner rather than later:

Sahm, chief economist at New Century Advisors, said the central bank is taking a big risk by not moving now with gradual cuts: By not taking action, the Fed risks the Sahm Rule kicking in and, with it, a recession that potentially could force policymakers to take more drastic action.

“My baseline is not recession,” Sahm said. “But it’s a real risk, and I do not understand why the Fed is pushing that risk. I’m not sure what they’re waiting for.”

“The worst possible outcome at this point is for the Fed to cause an unnecessary recession,” she added.

There was more that happened to shape the future expectations of investors during the week that was. Here's a quick review of the market moving headlines from the Independence Day holiday-shortened trading week.

Monday, 1 July 2024
Tuesday, 2 July 2024
Wednesday, 3 July 2024
Friday, 5 July 2024

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull reading a newspaper with the headline 'BAD NEWS IS GOOD 4 STOCKS 4 NOW'".

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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