$S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $DJIA(.DJI)$ Last week I shared with you some of my Best Charts of 2022(as well as my Worst Charts of 2022) — so this week I wanted to follow up with my Favorite Charts of 2022!
The following charts made the list either because they were something completely new or just super interesting (to me at least!) ...or indeed ones that helped illuminate some of the key developments across macro and markets.
1. Opinion vs Action
Earlier in the year a fascinating development showed up in the charts: investors were saying in surveys that they were extremely bearish, but their asset allocations spoke louder (telling a story of hope and complacency). Things have shifted now, but it’s still an intriguing disconnect.
“also worth highlighting is how while surveyed sentiment is bearish, investor portfolio allocations to equities remain near the top of the range: no capitulation there”(13 May 2022)
2. Price to Book Ratio Record
In hindsight it is interesting to note the pushback that I got on this chart back when the chart was putting in all-time high readings. Still at this point I would not say we are anywhere near cheap on this chart, but at least some adjustment has taken place — maybe not enough yet given macro/monetary headwinds that still loom now and incoming.
“Focusing on the US, the S&P500 value vs growth ratio is turning up from record lows (total return terms), and this is from a starting point of value showing up much cheaper than usual relative to growth… and at a time where market valuations in general (but especially certain sectors and companies) are at historically extreme expensive levels.” (28 Jan 2022)
3. Monetary Headwinds to Emerging Market Equities
One of my favorite leading indicators; the EM monetary conditions composite (my own secret recipe of various monetary herbs and spices), as I noted earlier last year — when the liquidity tides are going out it’s hard for the equities (or the economy) to perform.
As the year rolled on, emerging market equities started to get cheaper (or less expensive), and sentiment began to shift, but this one stopped me from getting tempted to tilt bullish... sometimes you just have to bepatientand wait for things to unfold, the time will come, and these signs will tell you.
“But specifically for Emerging Markets, it’s difficult for the equities to put in positive performance when monetary conditions tighten like this.” (25 Mar 2022)
4. Commodity Valuation Peak
One of the charts that helped mechange my viewon commodities — this indicator took top down insights from bottom-up analysis: looking at the breadth and level of valuation indicators across 46 different commodities (and yes, you can build valuation indicators on commodities, but it takes a bit of creativity and ingenuity). Goes to show when valuation readings get extreme enough they have a habit of speaking for themselves.
“In terms of valuation trends across commodities, these indicators basically work on a mean/trend reversion and real + relative price deviation basis. Across the 46 commodities we can see prices are certainly looking stretched.”(18 Mar 2022)
5. Global Monetary Headwinds
As we head into 2023,global recessionlooks near-certain, with a number of indicators now dropping into recessionary territory, such as the global manufacturing PMI in the chart below. As the leading indicator suggested at the start of the year, this is entirely logical.
“a bunch of leading indicators are pointing to a slowdown. First set of charts is the monetary policy trackers – the global policy pivot [to tightening] which I documented at length last year, as a minimum means less of a tailwind to growth, and ultimately tightening.” (21 Jan 2022)
6. Credit on Borrowed Time
Bearish credit kind-of worked this year in that credit spreads widened somewhat, and I noted with this chart thatcredit was on borrowed time. I suspect with policy lags, further tightening, and recession risk in 2023, that the initial pop up in spreads could be simply Act 1 of a show that will go on into Act 2 this year.
“Credit is getting closer to a short/underweight: US high yield spreads are at expensive levels (back to 2007 levels), “real yields” are negative, effective nominal yields are close to record lows, and the spread of spreads indicator for the lowest quality credits shows a much lower risk premium than usual. Importantly, the Fed has accelerated taper and will likely commence QT and rate hikes this year – which collectively has historically been a headwind for credit sooner or later.” (15 Jan 2022)
7. LatAm Equity Valuations
Thisfamiliar chartmakes my favorites list because as a group, LatAm were one of a very few markets that turned in (slightly) positive returns across 2022 (they also had a very strong initial run in Q1 given their heavy commodity exposure). But as things stand now, given the push lower in commodities, they’ve actually gotten cheaper despite the positive stock price performance.
“LatAm equities [Argentina, Brazil, Chile, Colombia, Mexico, Peru] look notably cheap (currently tracking at an average PE10 of 16.9 vs long-term average of 21.9). FX valuations are also quite cheap, almost 2 standard deviations below long-term average. So there appears to be a value opportunity emerging in this subset of emerging markets.” (15 Jan 2022)
8. Global Equity Valuations
Another valuation one, and anold favorite. It’s interesting because of the path of US valuations, but I think the more interesting one is developed markets excluding-USA: that group briefly saw valuations drop all the way to the bottom of the range, with only 2008 and 2020 turning in cheaper levels (and not by all that much either). Perhaps another clue to think about for this year...
“US equities are tracking at extreme expensive levels. Much like the dot-com era, there is a long line of people presenting a long list of reasons for this (e.g. rates are low, earnings are high, and various other reasons which are obvious and therefore likely already reflected in the valuations).”(15 Jan 2022)
9. A *Small* Monetary Policy Pivot
Almost feel like I’m talking too much about monetary policy! …but it has been a big deal for macro and markets. What I like about thischartis how it draws information from a non-obvious source: the world’s smallest central banks. They were first to pivot to rate hikes, and now…
“Given still intense inflationary pressures, the global policy pivot that kicked off last year remains an important theme. Indeed, checking in on the smaller/developing country central banks we see an ongoing lurch towards rate hikes as central banks frantically scramble to click undo on the rash of rate cuts delivered in the depths of the pandemic panic in 2020.”(4 Feb 2022)
10. Bear Market Seasonality
Finally, and perhaps my most favorite is my alternative take on seasonality, differentiating between how seasonality works during bull vs bear markets. The thing I like about this is how it flips some of the traditional market aphorisms on their head. Seeoriginal post for full details
“I wanted to see if the seasonal pattern looks different during a bull vs bear market. To do this, as a quantitative proxy I simply marked years where the market finished down YoY as “bear markets” (and vice versa). As you might expect, but perhaps also somewhat surprising, the bear market seasonality picture is entirely different than the all-time and bull market seasonal patterns. Interestingly, the “sell in May” effect seems to be absent during bull markets (accentuated in bears).”(21 Oct 2022)
So an interesting set of charts in terms of what worked, how the year unfolded, how to think about macro and markets… But also some interesting clues and snippets for the year ahead (and p.s. stay tuned for the 2023 Charts blog coming soon…!)
https://topdowncharts.substack.com/p/my-favorite-charts-of-2022
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