Two Data Topics today:
#1: US back to school shopping season is either happening very late this year or American consumers are becoming a bit wary.
This is a Google Trends chart of US query volumes for the term “back to school” over the last 5 years. Before the pandemic, peak “back to school” searches were in the week starting August 4th – 6th. Last year, with so many schools shifting to hybrid or home-based education, searches peaked later (week of August 16th) and were 35 percent below 2019 levels.
This year, even though most US schools will offer only in-person education, Google search volumes for “back to school” were 29 percent below 2019 levels during the customary peak in the first week of August. We suspect there are several dynamics at work, including concerns that schools may shift back to hybrid or remote teaching models in the fall and perhaps US households are also curtailing spending as they normalize their budgets. We’ve seen the latter in the Google Trends data for other spending categories of late.
Takeaway: back to school shopping is an especially good indicator of the US consumers’ current desire and ability to spend, so seeing the 2021 BTS season apparently so weak is a real concern. While we were not especially surprised that last week’s Retail Sales report was softer than expectations, seeing this weakness spill over into August is an unwelcomed development. We don’t want to come across all “doom and gloom” on a day when the S&P 500 made a new all-time high, but the US consumer is not behaving as you’d expect given a generally strong economic backdrop.
#2: The S&P 500 has now doubled from its March 23rd, 2020 close of 2,237, which is great, but today we’ll focus on a more useful analysis: how have global/US stocks done since the start of 2020? That broader timeframe both sees through the crisis low and gives a broader perspective on equity returns, first through the worldwide Pandemic Recession and then into the global economic recovery.
Two points here:
Big picture: Global equities, as measured by the MSCI All World Index (ETF ACWI), are up +30.0 percent on a price basis since the start of 2020. That is a compounded annual growth rate of 19.6 percent, or essentially double ACWI’s 10-year total return CAGR of 10.0 pct.
Remember: that 30 pct return, 2x the long run annualized rate, is from the end of December 2020 (“where exactly is Wuhan again?”) to August 2021 (“only vaccinated people can eat indoors at a NYC restaurant”).
Drilling down: geographic price returns from the start of 2020 to today:
- S&P 500: +38.6 percent
- Russell 2000: +32.3 pct
EAFE (non-US developed economies):
- MSCI EAFE Index: +15.5 percent
- MSCI Japan: +14.0 pct
- MSCI Europe: +18.2 pct
- MSCI UK: -3.5 pct
- MSCI France: +17.2 pct
- MSCI Switzerland: +25.7 pct
- MSCI Germany: +18.6 pct
- MSCI Emerging Markets: +12.0 pct
- MSCI China: +5.4 pct
- MSCI Taiwan: +50.7 pct
- MSCI South Korea: +35.0 pct
Takeaway: while at first blush it may seem like US equities explain most of the MSCI All-World’s exceptional performance since December 2019, the reality is that every geographic region has been running almost/over 2x their longer run returns over the last 19 ½ months:
- S&P 500 CAGR since the start of 2020: 24.6 percent
- 10-year CAGR: 14.5 pct
- Ratio: 1.7x
- MSCI EAFE CAGR since the start of 2020: 10.3 percent
- 10-year CAGR: 5.8 pct
- Ratio: 1.8x
- MSCI Emerging Markets CAGR since the start of 2020: 8.1 percent
- 10-year CAGR: 3.7 percent
- Ratio: 2.2x
Now, to apply this analysis to future returns, consider the following question: “which of these regions is most likely to have generated unsustainable returns over the last 19 ½ months?” To us, the answer is clear – Emerging Markets. China is still 34 percent of MSCI EM, and that country is in the middle of resetting what it deems an appropriate level of corporate earnings (especially among high-value public tech companies). MSCI UK is at the other end of the spectrum, basically flat since the start of 2020, and we continue to like that country’s equity market. We’ve covered why we believe the S&P 500 has improved its earnings power in the last 2 years many times in these notes, so to our thinking its returns are justified and we continue to like US large cap stocks.