5-Chart Friday (8/14/20)

By Charlie Bilello

14 Aug 2020


5 charts from the past week that tell an interesting story in markets and investing…

1) Rising … Inflation?

Deflation has been the buzzword nearly all year, particularly from the Fed in justifying their extraordinary easing measures.

So it might come as a surprise to see US inflation expectations rising in a vertical fashion. At 1.67%, breakeven inflation rates are now at their highest level since February 13, before the COVID crisis began.

2) 0 Expectations

Does rising inflation mean the Fed will soon reverse course on their zero-interest-rate policy?

Market participants are certainly not betting on that, with Fed Fund Futures pointing to 0% rates three years from today. Fed projections for future rates at the end of 2018 and 2019 were just a little bit higher…

3) The Worst is Over

Second quarter GDP figures are coming in and the results are not pretty. The good news: the worst is over. Absent another worldwide shutdown, an unlikely occurrence, we will never see another quarter this bad in our lifetimes.

4) COVID-19 on the Decline Again

New COVID-19 cases in the US continue to move lower, down 14% over the prior month. Hopefully a downtrend that will continue…

5) Stock-Split Mania

Tesla announced a 5-for-1 stock split after the close on Tuesday and its shares immediately spiked over 7% higher.

It would finish the next trading day up over 13%.

During the 1990s tech bubble, stock-split mania was also a thing.

While there’s no question Tesla is a growing company, it’s hard to argue that growth is the primary driver of the exponential increase in its share price over the past year.

What has been the more important factor? Exuberant investor sentiment, which has driven Tesla’s price to sales valuation up to 12.3x from 1.5x a year ago.

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And that’s it for this week. Thanks for reading.

Have a great weekend everyone!

-Charlie

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About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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