The Sandbox Daily (9.21.2022)
Time horizon, gas prices, S&P 500 volatility, Russian oil and coal exports, housing data, and 25 million pounds of trash
Welcome, Sandbox friends.
Today’s Daily discusses the importance of extending your time horizon when investing, the 1st gas price increase in 98 days, quantifying the volatility of the S&P 500 in 2022, Russian oil and coal exports to China soar, a mixed bag of housing data, and cleaning up 25 million pounds of trash.
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 -1.42% | Dow -1.70% | S&P 500 -1.71% | Nasdaq 100 -1.80%
FIXED INCOME: Barclays Agg Bond +0.27% | High Yield -0.30% | 2yr UST 4.059% | 10yr UST 3.534%
COMMODITIES: Brent Crude -0.42% to $89.98/barrel. Gold +0.44% to $1,679.9/oz.
BITCOIN: -3.20% to $18,368
US DOLLAR INDEX: +0.95% to 111.317
CBOE EQUITY PUT/CALL RATIO: 0.67
VIX: +3.06% to 27.99
Extend your time horizon
This chart shows two things.
1. Over very short time periods, market performance is nearly impossible to determine – a random walk down wall street, as they say. Daily (and weekly, but not shown) returns are fairly evenly distributed among positive and negative outcomes. What will the market do tomorrow? Roughly 50-50 odds going either direction.
2. However, the longer you invest, the higher the probability that you'll make money. This is mostly because of earnings cycles, market liquidity, and the velocity of money which all favor long-term growth patterns. Investing can be very difficult, especially over shorter time periods or during market corrections (such as the environment in 2022), but it’s prudent to extend your time horizon and allow time and compounding to do the heavy lifting. Renowned investor Warren Buffett is credited with saying: “Investing is simple, but not easy.”
Source: Compounding Quality
First gas price increase in 98 days
The streak is over. A 98-day stretch of declines in the average U.S. national gasoline price ended on Wednesday, a sign that the effect of falling fuel costs, which have recently helped temper overall inflation, might be waning. Per a report from AAA, average gas prices rose for the first time in 98 days, the second longest sequential decline in the last twenty years.
The decline to date has only partly reversed a prolonged run-up in gas prices, which accelerated after Russia’s invasion of Ukraine in February and continues to roil consumer prices. The national average gas price rose seven-tenths of one cent to $3.681 a gallon on Wednesday.
Source: New York Times, Bespoke Investment Group, AAA
A most volatile year
When you put it this year in historical perspective, 2022 ranks right up there with the worst of them. Today, the S&P 500 fell more than 1% for the 46th time this year. That works out to 25% of all trading days, or more than one -1% decline a week. Since the five-trading day week started in 1952, the only other years with a higher percentage of -1% down days were 1974, 2002, and 2008. With declines of -29.7%, -23.3%, and -38.5%, respectively in those years, this year’s decline of -20.5% seems somewhat pedestrian.
Source: Bespoke Investments Group
Russian oil, coal exports to China soar in August
China's imports of crude oil and coal imports from Russia exploded in August, but despite the jump in supply, Russia handed back its top oil supplier ranking to Saudi Arabia for the first time in four months, even as coal exports hit a record high.
According to data from the Chinese General Administration of Customs, imports of Russian oil, including supplies pumped via the East Siberia Pacific Ocean (ESPO) pipeline and seaborn shipments from Russia's European and Far Eastern ports, totaled 8.342 million tons, surging +28% YoY, the equivalent of 1.96 million barrels per day (bpd), and just slightly off May's record of nearly 2 million bpd. China is Russia's largest oil buyer, especially now that most of the western world has sanctioned Russian energy.
China's purchases of Russian oil have soared in order to reap the benefits of a plunge in European buying and tumbling prices for Russian oil.
But it wasn't just Russian oil that Beijing was waving in: China's coal imports from Russia also exploded in August, exceeding last month's level and hitting the highest in at least five years, as power utilities in the world's biggest coal consumer sought overseas supplies to meet soaring demand in extreme hot weather. Arrivals of Russian coal last month reached 8.54 million tons, up from the previous peak of 7.42 million tons in July and +57% higher than in the same period last year. In fact, the monthly figure was the highest on record since comparable statistics began in 2017.
Source: Bloomberg
Housing starts rise, but permits decline again
Housing starts rebounded +12.2% in August to a 1.575 million unit annual rate, fully reversing the decline in the previous month. It was the highest level since April and was led by multifamily. On a YoY basis, housing starts were down just -0.1%, an improvement over the -10.7% decline in the month before.
In contrast to starts, building permits dropped -10.0% last month to a 1.517 million unit annual rate, below consensus expectations and at the lowest level since June 2020. It was its 4th decline in the past 5 months and the most since April 2020. Permits fell in both property sectors and across all regions. Building permits sank -14.4% YoY, the steepest decline since early in the pandemic, and the second biggest drop since March 2011.
Taken together, it suggests that despite the uptick in housing starts, the near-term risk for construction activity remains to the downside. Additionally, the steep drop in homebuilder confidence in September, as shared earlier this week on Monday’s The Daily, also implies a weaker near-term trend in housing starts.
Source: Ned Davis Research
Cleaner waters
25 million pounds of trash has been recovered from the oceans, rivers, and coastlines by 4ocean. What an incredible effort and impact on our planet in just under five years.
What weighs 25 million pounds?
1,923 Liberty bells
609 whale sharks
196 Boeing 757s
83 blue whales
55 Statues of Liberty
5.5 space shuttles.
Source: 4ocean
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.