🟪 Friday pay-later charts

You have to spend money to make money

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Byron Gilliam
December 06, 2024

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“A pin lies in wait for every bubble.”

— Warren Buffett

Friday pay-later charts

The S&P 500 finished the week with another all-time high, thanks in part to a better-than-expected jobs report.

Not that it needs much of an excuse — Thursday was the S&P’s 55th new high of the year, so any reason will do, really.

The market might just as easily put a negative spin on the jobs data as the unemployment rate ticked up to 4.2% and the household survey showed a shrinking labor force.

Either way, people seem to be sensing a change — a Gallup poll out this week showed Americans becoming less certain about their job prospects and more dissatisfied with the jobs they have.

That hasn’t stopped us from shopping, though. 

US retailers reported Black Friday sales up 3.4% vs. last year, driven by a 14.6% rise in online purchases — many of which we didn’t pay for.

Americans are expected to make a record $18.5 billion of “BNPL” purchases (buy-now-pay-later) this holiday shopping season, up from $16.6 billion last year.

It hasn’t stopped investors, either, who have been shopping just as aggressively with options volumes hitting all-time highs, leveraged ETFs booming and crypto seeing record inflows. 

That may well be justified with oil prices, mortgage rates and bond yields all falling to post-election lows.

Even the dollar is trading off its recent highs, suggesting that the one hesitation investors had with Trump (tariff- and deportation-induced inflation) seems to be not much of a concern.

This week’s news that Trump’s most pro-tariffs advisor, Robert Lighthizer, had been shut out of a cabinet position may even have investors believing in a Goldilocks scenario in which Trump delivers on all his market-friendly promises and none of the unfriendly ones.

If so, they may soon be aiming even higher than the $7007 price target Wells Fargo generously put on the S&P 500 this week (yes, that’s a price target and not an MI6 agent number).

So, what could possibly go wrong?

One note of potentially extreme caution this week came from a new study of avian flu, which found that it may be much easier than previously thought for avian flu to mutate into a form that can be passed from human to human.

Avian flu, which has been spreading rapidly among cattle in the US, has a terrifying death rate of up to 30% in humans.

I’m guessing that another pandemic (disrupting another Trump Administration!) is still only a tail risk, but the new study is at least a reminder that risks are ever present in investing (and life).

That’s easy to forget in a year of 55 all-time highs.

Let’s check the charts.

Back on track:

Payrolls grew 227,000 in November as the job market recovered from October's labor strikes and hurricane disruptions. Revisions were also notably positive, with September now +255,000 (vs. +223,000) and October +36,000 (vs. +12,000).

Still not landing:

The US economy continues to defy expectations with the Atlanta Fed’s estimate for Q4 GDP up to 3.3%. 

Extending its lead:

The FT notes that US labor productivity has grown three times faster than the rest of the G7 (Europe, the UK and Japan). “That productivity gap, visible for a decade, is reshaping the hierarchy of the global economy.”

You have to spend money to make money:

Per a recent report on productivity, US R&D comes mostly from companies founded in recent decades investing in new, productivity enhancing technologies.

Europe isn’t spending:

In contrast to the US, Europe’s R&D comes mostly from old-economy companies, many of which were founded in the 19th century. The reason Europe doesn’t invest in new tech may be that the cost of failure is 10x greater than it is in the US.

US investors have reaped the benefits of tech spending:

The Magnificent 7 is now up 63% on the year, vs. 27% for the S&P 500.

Overdone?

US options volume is at an all-time high, driven largely by a boom in one-day options — the newest way for people to turn investing into gambling. 

The black swan:

Polymarket puts the probability of a bird flu pandemic at a disturbingly high 15%. But the relevant information here is that only $10,000 has been wagered — which means that no one is paying attention.

Let’s hope that’s not the pin that pops this enjoyable bubble.

Have a great weekend, all-time high makers.

— Byron Gilliam

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