By Tim Holland
These remain unsettling times for the US. We are living in and through an exceptionally divided social, political and cultural construct; Congress and the Biden Administration seem nowhere near a debt ceiling deal that will enable the US to avoid the financially unthinkable — defaulting on our debt; the 2024 Presidential campaign cycle — and all the vitriol that will accompany it — is kicking off, and Russia and China are making clear their desire to see the world move away from the US Dollar.
Well, after digging into the US Dollar in last week’s Weekly Wire — specifically, why we don’t think the US Dollar will lose its status as the world’s reserve currency anytime soon — we wanted to spend this week focusing on another meaningful advantage our country enjoys relative to other nations (in addition to the exorbitant privilege of printing the world’s reserve currency) and that’s its energy profile. Consider that in 2005, US petroleum production averaged 7.9 million barrels a day and US petroleum imports averaged 13.7 million barrels a day. But then, as hydraulic fracturing or “fracking” took off, US petroleum production jumped to 14.9 million barrels a day and US petroleum imports fell to 9.5 million barrels a day in 2015. And in 2021, US petroleum production jumped again to 18.8 million barrels a day and US petroleum imports fell again to 8.5 million barrels per day (see chart). What is maybe most compelling about our changed energy profile is that the US became a total net petroleum exporter in 2020 (see chart).
The US remains a superpower, and in more ways than one — we are home to the world’s largest economy (current GDP is estimated at $26.1 trillion); the world’s most powerful military (we outspend China on defense outlays by an estimated 2.8 to 1 in dollar terms) and we are the world’s top producer of oil and natural gas (we surpassed Saudi Arabia in oil production in 2018). We appreciate that the US faces any number of challenges today, but we are and will continue to be, we think, the best house in the global neighborhood.
By Rusty Vanneman, CMT, CFA, BFA
To build wealth, one needs to invest and stay invested. That is often easier said than done though. Just consider this year for example. Given the bevy of negative factors we already knew entering the year, combined with the new negatives that have appeared such as stress in the banking sector, the U.S. stock market (as defined by the S&P 500) was still up by over 8% as of the end of the last Friday. It’s only April, but that return is basically a typical year in the stock market already. As for what has led the market higher, U.S. large-cap growth stocks have gained over 14%. Lower interest rates and the increasingly bright outlook for artificial intelligence are two leading factors for those gains. However, the average stock in the overall U.S. stock market is down on the year so far.
That would regretfully qualify as discouraging market breadth as strong markets usually have participation from more stocks than not. Related to this point, it should be noted that the stocks known as FAANG+MNT (Microsoft, NVIDIA, and Tesla) are now over 25% of the S&P 500's market cap, and have contributed over 80% of this year’s stock market gains as of April 17th. In fact, Apple's current 7%+ weighting in the S&P 500 would be the largest for any single company in the index with data going back to 1980. Given the history that top companies typically don't stay on top over time, it would also be wise counsel to suggest that investors remain invested not only due to the market’s powerful tendency to produce positive long-term returns over time, investors also need to diversify to maintain wealth.