Year over Year Change in S&P 500

It's been a great year for the S&P thus far, but thanks to the last few days and the steep pullback that started around this time last year, the index is only up 3% y/y.

Amazon vs. Walmart

Here is the same set of charts as the previous post for Amazon vs. Walmart.  Amazon does 10% of WMT's sales at a lower gross margin, but its market cap is roughly 42% of WMT's.

AMZN Revenues TTM data by YCharts

AMZN Gross Profit Margin data by YCharts

AMZN Market Cap data by YCharts

Amazon vs. Best Buy Revenue

With Best Buy's CEO stepping down yesterday there's a lot of talk about how Amazon is killing all retailers.  Below is a chart comparing AMZN's revenues vs. BBY's.  Also there is are chart comparing each company's gross margin and market cap.  Electronics and other merchandise was roughly 60% of AMZNs sales in 2011, so it really only sells about half as much electronics merchandise as Best Buy does.  It's market cap is 11x larger though.

AMZN Revenues TTM data by YCharts

AMZN Gross Profit Margin data by YCharts

AMZN Market Cap data by YCharts

Growth Stock Roundup

Much to this value investor's dismay, this is starting to smell like the type of market that "growth" (i.e. momentum/unreasonably valued) stocks could outperform.  Below is a group of the top stocks from Avondale's proprietary growth screen and their performance since the beginning of the month.  The S&P is down 3.5% now month to date.  This group is only down 1.79%.

Some names that don't pop up in the screen that come to mind are: AAPL, CMG, UA, NKE and MCD.  All of these have done better than the S&P since April 1.

Small Cap vs. Large Cap Performance

The Russell 2000 is down 1.4% today, about 50bps more than the S&P 500.  The small cap index still has not broken above its high point set last year and is trailing the S&P 500 year to date as well.  Y/Y the Russell is down 4% while the S&P is up 4%.

April Investor Letter

Below is a letter that is written monthly for the benefit of Avondale Asset Management's clients.  It is reproduced here for informational purposes for the readers of this blog.

Dear Investors,

It’s said that markets are ruled by fear and greed, but for the last several years, there has been much more of one than the other.  Since the S&P 500 peaked in 2007, there have been glimpses of the latter, but the market has mostly been dominated by the former.  For the first time in a long time greed appears to be creeping back into the picture though.  The S&P is up more than 12% for the year, and investors are starting to think about how much money they can make investing in stocks rather than how much they can lose.

This transition is a natural progression in an economic cycle and suggests that despite grim prognostications Americans may not have to adjust to a “new normal” after all.  The bottom of a recession is always marked by extreme despair, and from that point investors must slowly climb a proverbial wall of worry until sentiment flips from pessimism to optimism.  In 2008 it appeared that the US economy could be entering an extended depression.  Since then the economy has healed precisely as cyclical theory predicts it should.  The average economic expansion since World War II lasts 60 months and March was the 33^rd month of this one, so we are roughly in the middle of a typical cycle—the perfect time for greed to overtake fear.
We began the year worried about a European collapse and Chinese slowdown, but as the quarter ended, these worries no longer held much sway over US markets.  Even when a negative headline would cross the tape, the markets largely ignored it.  Focus was on a resurgent United States, an economy described as “robust” several times in the most recent ISM survey.  The quarter was so good that there was only one day that the S&P 500 lost 1% or more.  Last year there were 48 such days, and on average since 1957 a 1% decline happens 26 times per year (6 times per quarter).

While I’m not surprised that sentiment improved last quarter, I am extremely surprised by how fast it happened.  Even with an optimistic view, my expectation to start the year was that the S&P 500 might reach 1450 by year-end.  This would represent a 16% gain, which I thought would make stocks slightly overvalued, consistent with this part of the cycle.  At 1420, the S&P 500 is already within 30 points of that level though, which means that either my price target was wrong or the market isn’t going to rise much more between now and the end of the year.  I don’t have any problem if my forecast was wrong (in fact I expect it to be) but while the data has confirmed my initial optimism, it hasn’t exactly exceeded it.  So far I haven’t seen anything that suggests my target needs to be revised higher, which is why I continue to expect a pullback.

I’m constantly on the lookout for reasons why my target might need to be revised though.  April will be an important month to assess the need for revision, as companies will start to report earnings for the first quarter.  If it appears that earnings are on pace to grow faster than expected then it’s possible that the first quarter was just the start of something much bigger for the market.  Conversely, if 1450 is the right target then the market will have to effectively move sideways between now and the end of the year.  With 9 months left in 2012, that’s a long time to go without some sort of hiccup.  As summer approaches seasonality will begin to be a headwind for the market just as expectations may be reaching a near term high.

Scott Krisiloff, CFA

Opinions voiced in the letter should not be viewed as a recommendation of any specific investment.  Past performance is not a guarantee or reliable indicator of future results.  Investing is subject to risk including loss of principal.  Investors should consider the suitability of any investment strategy within the context of their personal portfolio.  For more information on Avondale Asset Management, readers may be directed here.

Inflation Since 1930

Paired with the previous post about Dow Jones returns since 1930, here is a list of consumer goods prices by decade.  The data was found at thepeoplehistory.com

Annualized rate of change for each of these items since 1930-2008 (from the data):

*Home price through 2008 incorporates the bubble.

Sadly, wages have lagged every category in this data except for gas (using a 2009 price).  If you use 2012 prices, with gas at $3.92, wage increases have likely lagged all 5 categories.