Wage growth vs. investment growth, plus America's reliance on China and Ferrari's profitability
The Sandbox Daily (4.24.2024)
Welcome, Sandbox friends.
Today’s Daily discusses:
wage growth vs. investment growth
America’s corporate dependence on China
Ferrari leads in profitability
Let’s dig in.
Markets in review
EQUITIES: Nasdaq 100 +0.32% | S&P 500 +0.02% | Dow -0.11% | Russell 2000 -0.36%
FIXED INCOME: Barclays Agg Bond -0.26% | High Yield -0.22% | 2yr UST 4.931% | 10yr UST 4.644%
COMMODITIES: Brent Crude -0.40% to $88.07/barrel. Gold -0.47% to $2,331.2/oz.
BITCOIN: -3.08% to $63,301
US DOLLAR INDEX: +0.13% to 105.817
CBOE EQUITY PUT/CALL RATIO: 0.65
VIX: +1.78% to 15.97
Quote of the day
“Successful people keep moving. They make mistakes, but they don't quit.”
- Conrad Hilton
Wage growth vs. investment growth
Wage growth is crucial for individuals as it directly impacts their standard of living and purchasing power. Higher wages enable individuals to meet daily expenses, save for the future, and improve their quality of life, contributing to overall well-being and economic security.
On the other hand, investment growth allows for wealth accumulation over time through compounding, financial security via passive income and capital appreciation, protection against inflation, and diversification benefits.
As the chart below shows, wage growth (aka “the workers”) over the previous 8 economic expansions doesn’t hold a candle to investment growth (“the owners”), assuming the S&P 500 in this example.
Wages and savings matter early in life (when human capital “HC” is substantially greater than your investment capital “IC”), while investments dominate later in life (HC<IC).
As Nick Maggiulli wrote in Just Keep Buying: “saving is for the poor and investing is for the rich.”
Source: Callie Cox
America’s corporate dependence on China
The S&P 500 has near record exposure to a China that is economically wobbly, with an increasingly authoritarian heavy hand to regulation.
S&P 500 companies’ reliance on sales to China doubled during the Obama administration, edged slightly higher under Trump, and jumped by roughly a third under Biden, before recently hooking lower. Meanwhile, S&P 600 companies (i.e. small-caps) exposure has been modest, slowly growing for the last two decades.
Technology, by far, is the sector most reliant on Chinese sales. Semiconductors get a whopping 30%+ share of their sales from China, helping to explain this overwhelming gap versus other sectors.
Source: Piper Sandler
Ferrari leads in profitability
Luxury sports car manufacturer Ferrari ($RACE) has been topping Wall Street’s estimates for nearly a decade, and in turn, handsomely rewarding its shareholders.
In 2023, gross revenue jumped 17% YoY totaling $6.46 billion, while net profits totaled $1.36 billion – both records for the company.
Ferrari sold just 13,663 cars in 2023. For perspective, Toyota shipped 11.2 million cars.
Ferrari's brand prestige and exclusivity allows them to command premium prices for their vehicles, helping the carmakers’ profitability surge to the top of the list.
And with Formula 1 motorsport superstar Lewis Hamilton changing racing teams from Mercedes to Ferrari, it seems Ferrari has further momentum on its side.
Source: CNBC, Michael Arouet
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. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.