April Charts of Interest: The S&P 500's Streak Ends

On Monday, April 15, the S&P 500 index ended its streak by falling below its 50-day moving average. I’ll talk about the streak as well as the index’s strong first-quarter 2024 performance. This month’s charts of interest also feature updated interest rate cut expectations, the Big Mac index (yes, that’s a thing) along with “insights” into the financial markets.

All streaks eventually end. Monday was the first time the S&P 500 closed below its 50-day moving average since November 2023. This was the 10th-longest such streak since 1950.

Perhaps It’s Just a Temporary Setback …

The dip below the 50-day moving average occurred after the S&P 500 posted gains in January, February and March. Stocks don’t continuously move in one direction, so a drop below the trend line was going to happen sooner or later.

The next 12 months could still be good for stocks. The Leuthold Group says the S&P 500 has historically averaged an additional 9.8% gain after rising during the first three months of a calendar year. The average gain since 1926 over the following 12 months has been 11.3%. “Relative to all other years, after a gain in the first three months of the year, the S&P 500’s performance advantage through year-end and the subsequent twelve months is about [2.0%–2.5%],” observed the investment firm.

My, Expectations for Interest Rate Cuts Have Fallen

I know the investment media has been hyperfocused on interest rate cuts, so I’m going to simply illustrate the shift in expectations.

First, here is where traders are currently thinking the Federal Reserve’s interest rate target will be at the December 2024 Federal Open Market Committee (FOMC) meeting. The chart is from the CME Group’s FedWatch Tool. As of this morning, traders are now anticipating just two quarter-point (0.25%) interest rate cuts.

Now, let’s jump into Mr. Peabody’s Wayback Machine and go back to January 2024. Three months ago, traders were anticipating between five and seven interest rate cuts.

Inflation Has Been Stabilizing Instead of Declining

The higher for longer interest rate mentality is being caused, in part, by this year’s consumer price index (CPI) readings. Here is the most recent chart from the U.S. Bureau of Labor Statistics (BLS):

A Big Mac Costs How Much?!

I came across a commentary by researchers at the Federal Reserve Bank of St. Louis about the Big Mac index. The Economist created the index in 1986 to compare the purchasing power of various currencies.

I laughed when I read the commentary because I used the same concept on my Chartered Financial Analyst (CFA) Level 2 and Level 3 exams (in 1998 and 1999, respectively). Specifically, in answering questions about purchasing power parity, I wrote that if the concept holds, then a person shouldn’t be able to buy a McDonald’s burger in Detroit, Michigan, and realize a profit by selling it in Windsor, Ontario, since it should be worth the equivalent in both currencies. 

Anyway, the researchers plotted the change in Big Mac prices against the CPI. Fast food prices have risen considerably more than the CPI since 2012. A Big Mac combo meal (a burger, fries and soda) here in Chicago, Illinois, currently costs $14.19!

The Federal Reserve Bank of St. Louis notes that “the subcomponent food away from home represents only 5.4% of the overall CPI using 2022 weights.”

Gold Is Shining Again

Gold prices have surged more than 15% since the start of March. As of yesterday, the precious metal was trading at an all-time high, as this chart from TradingView shows. (Wells Fargo thinks Costco is selling between $100 million and $200 million worth of gold bars per month.)

Though gold is traditionally seen as a hedge against inflation, the long-term record does not support this.

A Good Description of the Financial Markets

Much energy is spent trying to explain the daily and weekly movements of Mr. Market. Often his moves just reflect the collective emotions of market participants.

Regardless of which direction Mr. Market goes in, he is apathetic to your goals and needs. Or as the financial website Hedgeye put it recently, Mr. Market has the personality of a cat…