Today's Charts & Ideas: What Markets Are Telling Us #25

06/27/2025 | Unsubscribe

Good Morning!

Hope you enjoyed the extended holiday weekend.

Here are some important charts and ideas capturing the latest trends in US markets to help you understand what is happening from multiple different perspectives:

✅ What the Chart Shows

• The chart tracks year-over-year growth in US real average hourly and weekly earnings (adjusted for inflation):

  • Hourly earnings: +1.4% YoY

  • Weekly earnings: +1.7% YoY

• Both metrics are now at or near their highest levels since 2020.

💼 What This Could Mean for You

• 💪 Stronger Purchasing Power
  Real wage gains mean inflation-adjusted incomes are rising, enabling more discretionary spending.

• 🛒 Support for Consumption
  Rising real earnings can boost consumer-driven GDP, a key pillar of the US economy.

• 🧱 Potential Earnings Floor
  Real wage strength may shield households from economic softness, especially among lower- and middle-income groups.

🔁 Alternative Perspectives to Consider

• ⏳ Lagging Metric
  Real wage data reflects the past — it may not account for emerging inflation pressures or job market weakening.

• 📉 Productivity Watch
  If wage gains outpace productivity, it may erode profit margins, especially in labor-heavy industries.

• 🏦 Fed Sensitivity
  Persistent real income growth could delay rate cuts if seen as fueling demand-side inflation.

✅ What the Chart Shows

• The chart visualizes April's month-over-month retail sales performance by category, comparing:

  • Orange dot = April's latest data

  • White dot & line = 3-month average

• Top Gainer:

  • Miscellaneous stores: +1.5% MoM

• Biggest Decline:

  • Sporting goods/hobby/book/music stores: –2.5% MoM, the sharpest drop

• This weakest segment is highly tariff-sensitive, with significant reliance on Chinese imports.

💼 What This Could Mean for You

• 📉 Tariff Pass-Through Pain
  Categories reliant on imports (like sporting goods) may face demand declines as retailers pass higher input costs to consumers.

• 🛒 Selective Consumer Strength
  Spending resilience in broad or service-related categories contrasts with strain in discretionary, tariff-exposed segments.

• 🔁 Monitor Retail Rotation
  Expect a continued shift toward experiences and essentials, away from higher-cost, imported discretionary goods.

🔁 Alternative Perspectives to Consider

• 📆 One-Month Data Caveat
  April’s numbers might reflect seasonal or temporary effects, not a sustained downtrend.

• 📦 Inventory/Supply Dynamics
  Some weakness may stem from supply chain issues or stocking mismatches, not purely from consumer pullback.

• 💲 Elasticity Variability
  Other segments may withstand tariff pressures better due to brand loyalty or pricing power.

✅ What the Chart Shows

• Metric: Based on Federal Reserve data, U.S. household stock ownership as a percentage of total assets (1952–2025).

• Current Level:

  • All-time high — surpasses the Dot-com bubble peak (2000).

• Trend:

  • Persistent rise since the early 1980s.

  • Marked peaks during the 2000 Tech bubble and the 2021 post-COVID bull market.

💼 What This Could Mean for You

• 📉 Retail Risk Exposure Is Elevated
  Households hold large equity stakes, meaning any major market correction could have widespread wealth effects.

• 📈 Momentum + Confidence Loop
  Continued dip buying, especially in tech, has reinforced bullish sentiment — but could unwind rapidly in a downturn.

• 📊 Policy Sensitivity
  High exposure heightens household sensitivity to Fed moves, jobs data, or credit stress, potentially driving stronger market reactions.

🔁 Alternative Perspectives to Consider

• 💵 Wealth Effect Support
  If equities remain strong, high ownership could sustain spending, helping support GDP via consumption.

• 📈 Structural Shift in Asset Allocation
  Broader participation through 401(k)s, index funds, and digital brokerages may make higher equity allocation a permanent feature.

• ⚠️ Risk of Crowded Positioning
  Given the elevated retail ownership, a shift in sentiment or weak earnings could lead to broad-based, amplified selling.

✅ What the Chart Shows

• Metric: Based on CBO projections under different tax policy paths, U.S. federal debt and net interest payments as % of GDP.

• Left Chart – Debt to GDP:

  • Current (2024): Debt at 97.8% of GDP.

  • With TCJA Tax Cuts Extended: Debt surges past 200% of GDP by 2054.

  • If TCJA Sunsets: Debt still climbs, but tops around 165% by 2054.

• Right Chart – Net Interest to GDP:

  • Current (2024): Interest = 3.1% of GDP.

  • Under Market-Based Rates + Tax Cut Extension: Interest exceeds 6% by 2034.

  • CBO Baseline (lower rate assumption): Peak is lower, but still historically high.

💼 What This Could Mean for You

• 🧾 Fiscal Stress Warning
  Interest costs doubling may prompt risk premium adjustments in bond markets, raising borrowing costs across the economy.

• 📉 Austerity or Tax Hikes Ahead?
  Sustaining such trajectories may eventually force spending cuts or tax increases, with ripple effects on growth and household finances.

• 📊 Investment Outlook
  Elevated debt and interest burdens can crowd out investment, pressure long-term growth, and cause greater volatility in Treasuries and the dollar.

• ⚠️ Policy as a Catalyst
  As highlighted by Moody’s downgrade, markets could quickly refocus on U.S. fiscal sustainability, especially around election-linked tax decisions.

🔁 Alternative Perspectives to Consider

• 🔄 Post-WWII Playbook
  The U.S. has historically managed high debt via a mix of growth, inflation, and financial repression — that path could repeat.

• 💡 Growth > Interest Rates
  If nominal GDP growth stays above the average interest rate, debt-to-GDP could stabilize or decline naturally.

• 🏛️ 2025–26 Political Uncertainty
  Whether TCJA cuts are extended depends on election outcomes — the fiscal path remains highly politically contingent.

• 🧩 U.S. Debt Still Premier
  Despite rising ratios, U.S. Treasuries remain the global benchmark for safety. Market responses may be driven more by perception than math.

✅ What the Chart Shows

This chart tracks the US federal tax receipts as a percentage of nominal GDP (i.e., the effective economy-wide federal tax rate) from 1950 through 2025. Key elements:

• Gray bars = US recessions

• Red dots = Peaks in tax receipts before or during major economic slowdowns

• Red dashed line (~17.5%) = Long-term average of tax receipts relative to GDP

• 2025 level: Tax receipts are below the long-term average, around 17% of GDP, a relatively low level historically

💼 What This Could Mean for You

• 🧾 Supportive Fiscal Backdrop: A low federal tax burden means consumers and businesses retain more income, supporting spending, hiring, and investment.

• 🧲 Resilience Against Tariffs: While tariffs act as a tax, the overall low tax rate may help offset the economic drag they impose.

• 📉 Lower Recession Risk (Historically): Most recessions have occurred when the tax-to-GDP ratio was higher. Only two recessions since 1950 have happened at current tax levels.

• 💼 Room for Policy Maneuvering: Policymakers may have room to raise revenue in the future without immediately choking growth, especially if deficits remain high.

🔁 Alternative Perspectives to Consider

• ⚠️ Tariffs Still Act as Hidden Taxes: Even with low direct taxes, tariff hikes raise costs for businesses and consumers, particularly if concentrated in sectors like retail or manufacturing.

• 🧮 Revenue Shortfall Risk: Persistently low tax receipts may worsen federal deficits, especially with rising interest costs (see earlier chart on interest-to-GDP ratios).

• 🧭 Tax Rate Cycles & Lag Effects: Low tax receipts might reflect a lag from previous policy decisions, not necessarily a current economic strength signal.

• 🧨 Recession Not Solely Tax-Driven: While taxes are one input, recessions stem from broader macro and financial factors, including credit tightening, geopolitical risks, and market shocks.

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