Eight Charts that Explain the Market

You can learn a lot about what’s going on inside the market by just looking at some charts. Is the price going up, down, or sideways? Simple enough. But looking at something in isolation only reveals part of the story. If a bank is down 20% from its highs but the rest of the bank sector is down 40%, you would call this a relative winner.

Look at a chart of the FANMAG stocks and you’ll see that they peaked in November 2021, and have given up all of their gains back to September 2020. But once you compare the tech giants to the S&P 500, an entirely new image emerges. You can see that their relative performance peaked in July 2020 and all of their outperformance since the summer of 2018 has vanished.

There are two different markets right now; Companies that got the benefit of low rates, versus companies that can handle rising rates. It’s all one trade and the simplest visual to express this trade is short duration bonds versus long ones.

Short-term rates have risen more and faster than long ones, but the latter is more sensitive to them. This is why long-term bonds can see a fraction of the rate increase and four times the destruction as shorter-term ones. 3-7 year bonds are in a 10% drawdown while zero-coupon bonds are down 36% from their highs.

And this is what’s driving the market. When rates rise and inflation is high, investors are more sensitive to earnings today versus the potential of great earnings in the future. That’s why long-duration stocks are getting killed while cash-flow rich companies are holding up okay.

Nobody has time for disruptive technology during uncertain times when the incumbents are tried and true. We roughly know what JPMorgan is going to do and look like in the next couple of years, whether or not a recession comes. Buy now pay later is cool and all, but the business model is unproven and investors aren’t willing to subsidize losses when money actually costs something.

Here’s more of the same.

IBM might not be growing like it used to, but it still generated >$8 billion in free cash flow last quarter with $700 million hitting the bottom line. Robinhood burned through $400 million in cash and lost nearly $1 billion. Investors are like, “Umm, yeah, we’re not doing that anymore.”

In an inflationary environment, consumers and investors value physical items. CF Industries, one of the largest producers of fertilizers, is up 36% on the year. Facebook, I mean Meta, is down 45%.

One of the areas of the market that’s most sensitive to rising rates is homebuilder stocks. While they’re down 20 and 30%, build-to-rent names like Invitation Homes and American Homes 4 Rent are basically flat on the year. Absolute duds, but relative home runs.

On the podcast this week I spoke about how Disney was flat since 2015. I know the challenges that Disney has gone through and continues to struggle with, but seven years of no returns really blew my mind. And then I saw Jim Bianco tweet this and my head almost exploded. Disney has underperformed the S&P 500 since the inception of SPY (1993), and basically on every other time frame as well.

Some people might see this and say, “This is why you shouldn’t pick individual stocks.” I get that and I mostly agree. Disney is one of the most iconic companies in the world, and even that wasn’t good enough to beat the index. But for me, the more salient point is to diversify. Don’t put all of your eggs in one basket. It’s okay to buy actively managed mutual funds, but I wouldn’t recommend putting your entire net worth in three or four stocks.

The market isn’t fun right now and it’s all being driven by interest rates, inflation, and the fear of a slowing economy. That’s the bad news. The good news, and I’m admittedly reaching here, is that a lot of stocks already got pancaked. Meanwhile, nobody is bullish, and good things tend to happen when most investors think they can’t.

Next week is a huge one for earnings, which certainly feels like a make-or-break moment for the markets. We’ll hear from Google, Facebook, Microsoft, Apple, and Amazon, as well as D.R. Horton and Chipotle, and Caterpillar. If you want to listen to earnings calls like a podcast, check out the Quartr App, it’s terrific. Slides embedded in the app, 1.5x speed, skip to Q&A, fuhgeddaboutit.

Have a great weekend.


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.