Ignore the Noise, Focus on the Facts
TL;DR
The media was tossing around the term ‘stagflation’ again last week. But a closer look at inflation, unemployment and economic growth once again shows that the facts debunk the financial news outlets’ noise.
Last week, opinion pieces using the term ‘stagflation’ were running rampant. Business Insider ran a story on it, as did Fortune, CNN, Fox Business, Bloomberg, Investopedia, MarketWatch and The Wall Street Journal.
After sifting through the heaps of bullsh*t, two things gave us pause:
- Fearmongering is a well-known tool of the media.
- Stagflation implies high inflation, high unemployment, and stagnant economic growth.
While the first takeaway is obvious — propagandizing headlines is inherent to American news — the second leaves us bewildered.
That’s because fears of stagflation aren’t just overblown, they’re utterly misplaced.
3 Indicators Debunking Stagflation
Forget the talking heads for a minute. Ignoring their persistent punditry isn’t easy, but here are some quick hits that might help …
Inflation?
Sticky, but drastically lower. The consumer price index peaked at 9.1% in June 2022. As of March 2024, it’s down to 3.5%. That’s 61.5% lower in less than two years:
Unemployment?
Now 3.8%. The last time it was this low for an extended period: 1969 … the year Neil Armstrong and Buzz Aldrin walked on the moon:
But who needs historical context when Jamie Dimon, CEO of JPMorgan Chase, can open his mouth and a dozen mainstream media outlets use his oral flatulence as headlines?
Let’s take a moment to also consider two of Dimon’s recent hot takes:
- In January 2023, the prognosticator called Bitcoin a “hyped-up fraud” and “waste of time.” Bitcoin prices are up 271% since.
- And in April 2020, he warned of a “bad recession” in the wake of COVID-19. The S&P 500 recovered in less than one month and is up 105% since. Consumer confidence is also up by more than 34%.
How about stagnated economic growth?
The GDP readings seem obvious, having not posted a quarterly contraction since Q2 2022 while showing steady growth since:
Instead, let’s look at another gauge economists scrutinize to assess the economy’s wellbeing … and one that led us to this week’s two stock recommendations.
Factory Orders
New orders for U.S. manufactured goods rose by 1.4% from February to March to $576.8 billion (April’s data isn’t currently available).
But March wasn’t an anomaly. In the past year, factory orders have shown positive growth in eight of 12 months:
And it’s not just the U.S. Census Bureau’s data evidencing this: 11 other major indices show factory order growth.
What stood out to us the most is that monthly manufacturing growth was the highest in one particular sector: transportation and transportation equipment, which saw a 3.3% gain and builds upon momentum in that space.
Down the Rabbit Hole
According to the Financial Times, inflows into infrastructure investments soared last month to the tune of trillions of dollars. When recession or stagflation looms, you don’t see trillions of dollars in inflows to industries that excel during periods of economic growth.
In fact, when bearish sentiment grips the market and the economy shows signs of slipping, materials and infrastructure are two areas with notable investment outflows.
And when materials and infrastructure are performing well, you need transportation to shuttle goods.
We took these inflows — and the aforementioned indicators — as a sign that large-cap companies operating in transportation must also be performing well. So we visited a trusty stock screener to find out.
Two stocks immediately caught our attention: Cummins (CMI) and Ryder System (R). We’re not going to do a deep dive … but both companies are worthy of your attention.
Cummins, founded in 1919, is an American manufacturer of engines, filtration and power-generation products. It has a $40 billion market cap, a dividend yielding 2.3% and saw its revenue grow 24% from $6.85 billion to $8.54 billion between December 2022 to December 2023.
Shares are up 21% this year, 25% over the past year and 89% over the past five years.
Ryder, founded in 1933, is an American transportation and logistics company. It has a $5.4 billion market cap, a dividend yielding 2.31% and saw its revenue grow 69% in just six months from June 2023 to December 2023, from $1.78 billion to $3.02 billion.
Shares are up 9% this year, 54% over the past year and 93% over the past five years.
We’re not saying either company is a portfolio must-have (although both make the argument). What we are saying is that when industries like transportation and infrastructure are performing well … and when a litany of macroeconomic indicators are showing underlying strength in the U.S. economy … it’s time to ignore the pundits.