Will this be a week of significance? The preconceived narrative is that technology has improved growth and productivity. Real GDP has averaged about 2% per year in the past 20 years, about half of its growth rate from 1950-1973 according to First Trust. It’s hard to quantify government success because they don’t have profit motives. Some would say their budget size and head count measures their success.
The reasons are numerous but chief amongst them is the explosion of Federal spending which is now around 24% of GDP, up from around 9.5% in 1965.
Productivity however has surged in the oil sector. According to Bloomberg production has doubled over the past 10 years with half of the rig count, the result of huge gains in productivity.
Bloomberg also states the top performing sector during the Biden Administration was oil…up 284%. The second top performing sector was technology…up 120%.
Oil however is only 3.2% of the S & P 500 capitalization. Historically oil comprises about 10% of the S & P 500’s value. The Magnificent Seven is about 36% of the benchmark’s capitalization, an unfathomable amount. Five years ago, the top seven stocks comprised only 10% of the S & P 500. AAPL and MSFT are 7.6% and 6.3% of the S & P 500 value.
Wow!
Wednesday is the release of MSFT, TSLA and META’s earnings. Friday XOM post results.
How will the results be interpreted? Will oil continue to be the best performing sector, the result of increased productivity and massive under ownership or will more funds gravitate into the seven household names that already command a historical amount of investable funds?
This week a two-day FOMC meeting is being held. No change in policy is expected and is largely expected to be a non-event. However, can a Fed meeting really be called a non-event given they all have potential significance?
Also released is initial estimates of 4Q GDP. Will the data continue to support a “boomflation” environment…strong growth and inflationary pressures?
As noted above, the government is spending like drunken sailors. Is it unsustainable? There are only two ways to overcome massive debt…default/restructure or inflate.
The US economy is an asset-based economy, defined as building/buying something today with today’s money and paying for it tomorrow with tomorrow’s money that is/may be cheaper than today.
The Biden Administration was correct in its adamant statements that the economy is strong. But it missed the other side…inflation. This is not the first time the economy was experiencing “Boomflation.” The last time was in the 1950-early 1960’s as the country inflated its way out of WWII debt. The difference between today and yesterday was the commensurate increase in wages that made the typical American feel more affluent.
The economic calendar is comprised of numerous housing statistics, manufacturing indices, the FOMC meeting, preliminary estimates of 4Q GDP and ancillary PCE data, and personal spending and income.
Last night the foreign markets were down. London was down 0.22%, Paris down 0.76% and Frankfurt down 1.10%. China was down 0.06%, Japan down 0.92% and Hang Seng up 0.66%.
Futures ae bifurcated as the NASDAQ futures are down almost 5% on concern that a cheaper AI model form China threaten dominance of US technology.
NVDA has plunged about 12%. AI has added about $15 trillion to the NASDAQ since 2022 according to Bloomberg, with questions now mounting whether or not these gains are sustainable. Dow futures are off about 0.5%.
The 10-year is up 25/32 to yield 4.52% on a nominal flight to safety.
