NY Fed Data: Global Supply Chain Barely Improving
By admin_45 in Blog
Two “Data” items today:
Topic #1: The NY Fed was out today with an update to its Global Supply Chain Pressure Index. This reading is based on actual international shipping costs as well as components from national Purchasing Managers Surveys across the world’s major industrialized economies. There is a link to the data below, and as technical as it sounds the work is very approachable and well thought out.
As the chart below shows, worldwide supply chain pressures remain very high (3.3 standard deviations from pre-pandemic normal). About the only good news is that they are down from almost 5 standard deviations (4.5, to be precise) at the end of 2021. Even still, February 2022’s reading is scarcely better than May 2021’s 3.1 standard deviations from the mean.
The next chart shows readings for Japan, the EU, the UK, and the United States. All remain elevated, with Japan (red line, 3.2 standard deviations) the worst off and the United Kingdom doing the best (tan line, 1.2 standard deviations). The United States (blue line, 2.6 standard deviations) is not faring as well as the EU (light blue line, 1.4 standard deviations).
Takeaway: supply chain issues remain a real problem around the world and the US is in worse shape than most developed economies. Since the American economy has been stronger than the EU or the UK, that makes sense. It does, however, mean that inflationary pressures caused by supply chain problems will be with us for many months to come. Also worth noting: China’s February reading was 3.07, higher than any other single country except Japan. It is hard to imagine the global supply chain righting itself before China does so.
Topic #2: A brief review of year-to-date equity investment style/asset class price performance. We did not have the space to include these when we looked at February’s month-end results a few days ago, but they are important enough to mention and track:
First up, “Growth” versus “Value” around developed markets:
US large caps:
- S&P 500: -8.5 percent YTD
- S&P 500 Value: -2.6 pct
- S&P 500 Growth: -13.2 pct
- Growth underperformance to index: 4.7 points
US Small Caps:
- Russell 2000: -9.5 percent YTD
- Russell 2000 Value: -4.0 pct
- Russell 2000 Growth: -14.6 pct
- Growth underperformance to index: 5.1 points
MSCI EAFE (non-US developed economies):
- MSCI EAFE: -9.7 percent YTD
- MSCI EAFE Value: -3.6 pct
- MSCI EAFE Growth: -15.6 pct
- Growth underperformance to index: 5.9 points
Comment: despite the very different sector compositions of these 3 indices, the relative YTD underperformance of “Growth” has been fairly consistent. One might have thought that since EAFE has less Tech exposure that “Growth” would have fared better this year. That is not the case. Separately, Value has only been a way to lose less money, not actually generate a positive return in 2022.
Now, here is the YTD performance of small caps versus large caps around the world:
- S&P 500: -8.5 percent YTD
- Russell 2000: -9.5 pct
- Small cap underperformance: 1.0 points
- MSCI EAFE: -9.7 percent YTD
- MSCI EAFE Small Caps: -11.4 pct
- Small cap underperformance: 1.7 points
- MSCI Emerging Markets: -6.8 percent YTD
- MSCI EM Small Caps: -7.5 pct
- Small cap underperformance: 0.7 points
Comment: small cap underperformance is a consistent investment theme around the world year to date, highlighting the risk-off nature of global markets so far this year.
Finally, here is how the “minimum volatility” strategy is faring:
- S&P 500: -8.5 percent YTD
- MSCI USA Min Vol: -7.6 pct
- Min vol outperformance: +0.9 points
- MSCI EAFE: -9.7 percent YTD
- MSCI EAFE Min Vol: -7.8 pct
- Min vol outperformance: +1.9 points
- MSCI Emerging Markets: -6.8 percent YTD
- MSCI EM Min Vol: -1.6 pct
- Min vol outperformance: +5.2 points
Comment: “Min vol” has been out of favor for years, but it is certainly making a comeback in 2022.
Sources:
NY Fed Supply Chain Index: https://libertystreeteconomics.newyorkfed.org/2022/03/global-supply-chain-pressure-index-march-2022-update/
