My Favorite Charts of 2023
I really like charts, here's my favorites from the past year...
Recently I shared with you some of my Best Charts of 2023 (charts and calls that worked really well) and then my Worst Charts of 2023 (ones that didn’t work!).
This week (and before we get onto the Charts to Watch in 2024) it’s time to get back onto a brighter note and check out my favorite charts of the past year.
I selected these charts because they were either new and interesting or ones that helped illuminate some of the key developments across macro and markets. Many of them are still relevant and important for the current backdrop and risk-return outlook.
These charts were featured in my recently-released 2023 End of Year Special Report - do check it out when you get a chance (free download as a holiday treat!).
n.b. I have updated the charts with the latest data, for your reference. Also on formatting: the italic text is a quote from the report in which the chart originally appeared so you can see what I was thinking at the time.
n.b. be sure to check out our [FREE] Chart Of The Week series for more good charts.
1. EM Inflection Point: This chart combined a set of files and charts into a single picture – showing the price and breadth signal across emerging market assets. It proved useful in highlighting the inflection point that took place in Oct/Nov as markets collectively made up their mind that the Fed was done.
“Emerging Market assets have seen a sharp shift higher off the lows following last week’s weak payrolls and FOMC meeting pause – the implication being that EM investors basically reckon the Fed is done. Interestingly this came just as investors began to once again capitulate and give up on EM equities. In these markets, sentiment can shift swift” (10 Nov 2023)
2. EM Policy Pivot: Also on EM, the turn down in inflation surprises paved the way for a pivot by EM central banks.
“we now see a peak in the pace of tightening by EM central banks (as inflation is now surprising to the downside) and ultimately a peak in policy rates (which the bond market has already begun to flag with the peak in EM average 10-year yields).” (9 Jun 2023)
3. Pause: Speaking of central banks, this novel chart tracks the monthly proportion of central banks who did nothing (aka paused). After a frenzy of rate hikes in 2022, the trend shifted towards: slow down, wait and see. And only a few months later after that 90% reading, the most important central bank in the world kicked into pause mode.
“Another intriguing development is the proportion of central banks whomst in a given month neither hiked nor cut interest rates… basically “paused”, has (at just under 90%) reached the highest level since mid-2021 (which was when the global pivot to hiking began).” (28 Apr 2023)
4. Deflation Risk Tracker: If you think I got pushback when initially talking about disinflation, think of the reaction I got when flagging the risk of deflation – and then documenting the emerging incidences of technical (YoY) CPI deflation. As to whether this does become a more widespread thing into 2024, that is going to depend on the path of the economy… will the mixedcession soft landing evolve into a normal hard landing (and hence place cyclical deflation risk on the table), or will something else come along and surprise to the upside?
“also of interest is the growing incidence of economic deflation (year over year declines e.g. half of countries seeing industrial production contracting on a YoY basis) – historically weaker growth has lead to an uptick in the incidence of deflation” (10 Feb 2023)
5. Sentiment Shift: This one showed the dramatic shift in sentiment from one of the most bearish readings on record in 2022 to one of the least bearish readings almost a year later. Always, always pay attention to extremes in market indicators!
“The stall in stocks comes at a time of the year where volatility tends to spike, and seasonal headwinds weigh, but most importantly, it comes just as seemingly everyone turned bullish (indeed that’s what the surveys showed) and as just about all the notable bears threw in the towel… it’s quite possible that this is it for the echo-bull.” (8 Sep 2023)
6. IPO Market: Another interesting and novel indicator that helped flag upside risk to stocks early this year — this one tracks the pace of IPO activity and you can see clear peaks and troughs mapping to the market cycle.
“an interesting element of the boom-bust cycle is the arrival of a couple of potential positive signs for the stock market outlook: a plunge in the number of IPOs relative to the total number of listed companies (a bottoming signal that worked many times over the decades – with a few key exceptions, but also ideally you need to see the indicator drop and then tick back up), and a surge in the number of IPOs withdrawn. Part of this is just a reflection of the underlying market cycle, partly a reflection of sentiment, and partly an element of reduced supply.” (24 Feb 2023)
7. Rate-Shock: This one makes the favorites list because of how extreme it is – arguably it should be one to watch in 2024. It shows how in inflation-adjusted terms the indicative cost of servicing a new loan surged to one of the highest levels in history, meanwhile the housing market valuation indicators are likewise still at the most expensive levels in history. Something somewhere in this equation is going to have to make an adjustment!
“it’s remarkable to note how inflation-adjusted indicative servicing costs for new mortgages is on par with levels seen during the 80’s …back when housing market valuations were slightly cheap vs record expensive now. On that note: higher for longer rates will necessitate a meaningful adjustment to housing market valuations. ” (17 Feb 2023)
8. Valuations: Speaking of property market valuations, aside from housing, commercial property also remains extremely expensive vs history. We have seen a decent adjustment in REIT valuations, but like the previous chart, this one leaves a few open questions in terms of the next steps.
“Commercial property certainly is a concern given where valuations got (likewise for REITs), but it’s a similar story for the housing market where valuations have surpassed sub-prime highs.” (17 Mar 2023)
9. EM Bonds: On the topic of pauses and pivots, EM central banks are on the move, and much like developed markets – the time to buy EM bonds is when rates peak and central banks turn the corner.
“Lastly, with emerging economies in recessionary territory (based on the OECD leading indicators), and following significant front-loading of policy tightening, and waning of global inflationary pressures, EM central banks collectively could be first to pivot or at least pause. This would be a key step for sustained upside in EM sovereign bonds.” (20 Jan 2023)
10. Stock/Bond Stats: This table shows some very interesting historical stats for US stocks and bonds – when trying to predict the future of something it is always helpful and useful context to understand the past.
Are you predicting an outlier? Or are you predicting something relatively typical?
“overall bonds beat stocks about 38% of the time; bonds beat stocks 95% of the time when stocks were down, but bonds only beat stocks 14% of the time when stocks were up, and bonds were positive 89% of the time when stocks were also positive. So you can easily be right on bonds and wrong on stocks vs bonds, but the most reliable way to be right on bonds beating stocks is to pick stocks going down rather than bonds going up.” (23 Jun 2023)
So there you have it, a good survey of some key macro-market developments, a good glimpse at some of my work from the past year, and some good clues on the next steps in macro and markets…
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Thanks for reading!
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Callum Thomas
Head of Research and Founder of Topdown Charts
Twitter: https://twitter.com/Callum_Thomas
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