The Closer – Tech New Highs, Fedspeak, Build Conference – 5/20/24

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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with a look at the new highs in Tech (page 1) followed by a rundown of the latest Fedspeak and international central bank action (page 2).  We then take a look at performance of Microsoft (MSFT) and its industry group around the company’s Build Conference (page 3). After previewing this week’s Treasury auctions (page 4), we recap the latest positioning data (page 5 – 8).

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The Triple Play Report — 5/20/24

An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance.  You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term.  We like triple plays as an indication that a company’s business is firing on all cylinders, with better-than-expected results and an improving outlook.  A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.

Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts.  Bespoke’s Triple Play Report is available at the Bespoke Institutional level only.  You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 24 new stocks.  To sign up, choose either the monthly or annual checkout link below:

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Primoris (PRIM) is an example of a company that reported an earnings triple play recently. PRIM provides specialty contracting services, typically working on projects involving pipelines, facilities, power plants, water and wastewater systems, highway and bridge construction, and industrial maintenance. PRIM shares are up 57% YTD as shown in the steadily uptrending chart below.

Looking at the snapshot below from our Earnings Explorer, PRIM has been strong against EPS and revenue estimates over the last two years Before that, PRIM had struggled to meet revenue expectations due largely to weakness in its Pipeline segment. In reaction to this quarter’s triple play, PRIM was up 5% on 5/9.

As PRIM has since returned to YoY revenue growth, the increase has been driven by its Energy segment which sees scaling of solar and industrial construction. More specifically, PRIM highlighted grid modernization and demand for electrification as big reasons for optimism going forward as more companies bring AI to the forefront of their operations and begin to realize just how much power that will require. Despite lots of discussion around utilities lately, PRIM saw some of its strength offset by lower Utilities segment activity as seasonal delays and unfavorable weather conditions impacted revenue results. You can read more about PRIM and the 23 other triple plays in our newest report by starting a Bespoke Institutional trial today.

Bespoke Investment Group, LLC believes all information contained in these reports to be accurate, but we do not guarantee its accuracy. None of the information in these reports or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.

Extreme Nasdaq Extremes

The VIX may be trading at 52-week lows lately, but the Nasdaq has been nothing short of volatile.  Less than a month ago, we all recall when the Nasdaq traded down at ‘extreme’ oversold levels (2+ standard deviations below 50-DMA), trading down over 5% from its prior 52-week high. As swift as the April sell-off was, the rebound was just as rapid, and just last Wednesday, the Nasdaq was back at new highs and at ‘extreme’ overbought levels (2+ standard deviations above 50-DMA). While it took 17 trading days to move from extreme oversold to extreme overbought for the Nasdaq, late last year, the shift was even more rapid when it took just 16 trading days!

Based on recent action, you’d think that these types of rapid shifts between extreme oversold and overbought levels were common, but the last year has been more of an exception than a rule. Since the Nasdaq’s inception in 1971, the current period is just the 15th time it shifted from extreme oversold to extreme overbought levels in 20 trading days or less. In the table below we list each of those prior periods along with the Nasdaq’s performance over the following one, three, six, and twelve months.

Are these types of rapid shifts a good or bad sign for the market?  The last occurrence was certainly positive as the Nasdaq rallied more than 12% over the following three months and just under 19% in six months. More broadly, though, forward returns were essentially in line with the index’s average returns for all periods since 1971, especially over the following six and twelve months. Nothing extreme about that!

Bespoke’s Morning Lineup – 5/20/24 – Quiet Start

See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium.  CLICK HERE to learn more and start your trial.

“If I had my career over again? Maybe I’d say to myself, speed it up a little.” – Jimmy Stewart

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

There’s no economic news on the calendar this morning and earnings season is mostly (but not completely) behind us, which means there’s little news to kick off the week.  Things will pick up in the days ahead as we have a ton of Fed speakers on the calendar, but that won’t start until tomorrow.  For now, the path of least resistance appears higher, and futures are modestly positive as we approach the opening bell for the week.

Despite initial gains above $80 per barrel in overnight trading following news of Iranian President Raisi’s death in a weekend helicopter crash, WTI crude oil prices have fallen back below that level as we approach the opening bell. The drop comes after WTI also briefly surpassed its 200-day moving average, but then fell back down. The inability to hold these higher levels now calls into question whether WTI can hold above its uptrend from the 2023 lows.

Although the crude oil chart appears concerning, energy stocks look more attractive from a technical perspective. The Energy Select Sector SPDR (XLE) has indeed pulled back, but on Friday it found support at its 50-day moving average (DMA) and even broke the downtrend that has been in place since April 12th. Despite this month-long pullback, XLE remains the second-best performing sector ETF year-to-date, trailing only the 15.2% gain in Utilities (XLU).

To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.

Bespoke’s Brunch Reads – 5/19/24

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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On This Day in History:

The First AI: On May 19th, 1952, Time Magazine featured Claude Shannon and his revolutionary electromechanical mouse, Theseus. Shannon, known as the father of information theory, was a mathematician and electrical engineer whose work laid the foundation for digital circuit design theory and telecommunications. Theseus was designed to navigate a maze. Constructed with relays and switches, Theseus could learn the correct path through a series of trials. When placed in a maze, the mouse explored the pathways, and with each attempt, it improved its route efficiency, eventually finding the shortest path to the goal. This was achieved through a combination of memory and learning mechanisms embedded within the mouse. By illustrating that machines could be programmed to learn and solve problems, it inspired further research and development in AI, robotics, and automated systems.

AI & Technology

Press Pause on the Silicon Valley Hype Machine (NYT)
A year ago, leading researchers called for a pause in developing advanced AI systems, fearing their potential to become too powerful. Today, the concern is whether AI is too unreliable to be useful. OpenAI’s recent updates to ChatGPT, touted as groundbreaking, were routine improvements, highlighting AI’s inability to meet its hype some would argue. Despite AI’s advances in tasks like image identification and text generation, it often underperforms in practical applications. AI’s development is limited by data and energy constraints, raising questions about the substantial investments in AI and whether they are justified given its current capabilities. [Link]

I saw Google’s futuristic Project Astra, and it was jaw-dropping (Digital Trends)
At Google I/O 2024, Google introduced Project Astra, an advanced AI assistant with capabilities in speech, vision, text, and memory. Astra can interact naturally with users, recognize and describe objects, and remember information. During a demo, Astra impressively identified items, engaged in storytelling, and provided feedback without explicit prompts. Its natural speech patterns and continuous listening capabilities make it feel more like a human companion than a virtual assistant. [Link]

Neuralink’s First Patient: ‘It Blows My Mind So Much’ (Bloomberg)
Noland Arbaugh’s life changed drastically in mid-2016 when a lake accident left him paralyzed from the neck down. Now 30, Arbaugh has become a public figure as the first person to receive a brain implant from Elon Musk’s Neuralink. This device allows him to control his computer by thought, improving his ability to interact with the digital world. While he initially had issues with the implant’s performance, adjustments by Neuralink restored its functionality. Arbaugh uses the device extensively in his daily life and it reduces his pain. [Link]

It’s Time to Believe the AI Hype (WIRED)
Tech experts often describe major technological changes as “inflection points,” but recently, such changes occur frequently. This week, OpenAI unveiled GPT-4o, an AI model capable of disturbingly natural human interaction, and Google introduced Project Astra, a multimodal AI assistant. Despite skepticism and arguments about the limitations of AI progress, innovations continue rapidly. Economist David Autor suggests AI could empower the middle class by enabling workers to perform tasks reserved for experts. [Link]

Population Trends

Suddenly There Aren’t Enough Babies. The Whole World Is Alarmed. (WSJ)
The world is approaching a significant demographic milestone as the global fertility rate drops below the level needed to maintain a stable population. Fertility rates are falling across nearly all countries, affecting women of various income levels, education, and workforce participation, leading to major implications for societal structures, economic growth, and global power standings. Historically, high-income nations saw fertility rates drop below replacement levels in the 1970s, with the trend now extending to developing countries. Governments worldwide are concerned about shrinking workforces and underfunded pensions. [Link]

Economic Trends

Is the Recent Inflationary Spike a Global Phenomenon? (Liberty Street Economics)
Using monthly inflation data from 16 OECD countries, researchers constructed a measure of global inflation persistence, differentiating between broad-based and country-specific factors. The analysis shows that the post-pandemic spike and moderation in global inflation were predominantly due to persistent global trends. Headline CPI inflation, including food and energy, was largely influenced by broad-based factors like international commodity prices. Conversely, core CPI inflation, excluding food and energy, was influenced equally by country-specific factors and broad-based trends. [Link]

Peloton’s demise is another in a long line of failed fitness fads (Business Insider)
The connected fitness company is struggling: its CEO is stepping down, it’s laying off 15% of its workforce, and its stock is near record lows. Peloton thrived during the pandemic, hitting a market cap of about $50 billion, but failed to sustain that demand post-pandemic. With issues like declining demand, recalls, and financial woes, Peloton’s future looks uncertain. While the subscriber base remains relatively strong, the company faces tough competition and the transient nature of fitness trends. Instructors are diversifying their careers, likely anticipating Peloton’s potential decline. [Link]

Housing & Real Estate

2nd Look at Local Housing Markets in April (Calculated Risk)
Closed sales for April are mostly from contracts signed in February and March when 30-year mortgage rates averaged around 6.8%, down from over 7% in late 2022. Active inventory has risen 36.7% year-over-year, with notable increases in Florida, especially Jacksonville. New listings are up 26.1% year-over-year but remain historically low. April sales rose 6.7% year-over-year, a reversal from the previous month’s 9.5% decline. However, sales remain lower compared to January 2019 levels in most areas. [Link]

Energy

There’s Not Enough Power for America’s High-Tech Ambitions (WSJ)
DC Blox urgently needs power for new data centers in Georgia, where many tech and industrial firms are also flocking. Georgia Power, the state’s main utility, has increased its demand projections and plans to expand natural gas usage, raising concerns about higher bills and increased carbon emissions. Data centers, which require vast amounts of electricity, are central to this surge in demand as companies race to secure power quickly. Critics argue that Georgia Power’s plans could hinder clean energy goals, while businesses emphasize the need for rapid energy solutions to support their growth in the Southeast’s booming tech market. [Link]

Education

Flood of Fake Science Forces Multiple Journal Closures (WSJ)
Fake studies have flooded top scientific journals, leading to thousands of retractions and large financial losses. Wiley, a major publisher, is closing 19 journals due to large-scale research fraud. In the past two years, Wiley retracted over 11,300 compromised papers. Other publishers have also retracted hundreds of suspect papers, threatening the credibility of the $30 billion academic publishing industry. The fake studies often originate from “paper mills,” which create fraudulent papers for a fee. Despite efforts to combat this issue with new screening tools and technologies, the problem persists, with paper mills continually adapting their tactics. [Link]

Study casts doubt on ‘wokeness’ of US university courses (Financial Times)
Fewer than one in 1,000 US university courses reference critical race theory (CRT) or other “woke” topics, according to an analysis by Open Syllabus. The study of 5.6 million courses across nearly 4,000 institutions found that only 0.08% mention CRT, structural racism, systemic racism, or diversity, equity, and inclusion (DEI). Even among elite universities, the mention rate is just 0.12%. While it didn’t study the views of the professors teaching classes, these findings challenge claims by some that US education is dominated by these topics. Open Syllabus data also shows that most university curricula evolve slowly and remain largely unchanged by political and cultural shifts. [Link]

Food

The first Mexican taco stand to get a Michelin star is a tiny business where the heat makes the meat (AP News)
Newly minted Michelin-starred chef Arturo Rivera Martínez continues to sear meat as he has for 20 years at Mexico City’s Tacos El Califa de León, the first taco stand to receive a Michelin star. Located in the San Rafael neighborhood, the stand offers four types of tacos, all made from beef and served with a tortilla and sauce. Despite the Michelin recognition, the stand hasn’t changed. Customers, standing shoulder to shoulder with street vendors, praise the consistency and simplicity that earned the stand its star. [Link]

Crime

American IT Scammer Helped North Korea Fund Nuclear Weapons Program, U.S. Says (WSJ)
More than 300 U.S. companies unknowingly hired foreign nationals tied to North Korea for remote IT work, funneling $6.8 million to the isolated country and aiding its nuclear weapons program, the Justice Department revealed Thursday. The scheme involved thousands of North Korean IT workers using stolen identities to secure jobs. A US citizen hosted over 90 remotely operated computers in Arizona, while a Ukrainian man linked foreign nationals with fake identities and facilitated wage transfers. The operation targeted major corporations and even attempted to infiltrate US government agencies. [Link]

Policy & Law

Miami Beach Police rolls out world’s first Rolls-Royce police car (WSVN 7News)
The Miami Beach Police announced the department would introduce a new face to the force, a Rolls-Royce. Like the best teams in college football use their flashy uniforms, big stadiums, and state-of-the-art facilities to attract new talent to their programs, Miami’s police have stolen a page from the playbook. They’ll use the luxury vehicle to recruit the best officers to one of the best departments in the country as recruiting has become increasingly difficult. [Link]

Supreme Court legitimacy exhibits new partisan sorting (OSF)
Supreme Court legitimacy has experienced new partisan sorting, with Democrats increasingly skeptical of the Court’s responsiveness and influence. This is captured by feelings of pessimism, like the belief that “The Supreme Court ignores what ordinary people think.” These sentiments reflect a broader sense of powerlessness. The study, using data from 2012-2024, shows that Democrats are more fatalistic about the Court than Republicans, correlating strongly with their disapproval and reduced legitimacy perceptions. [Link]

Health & Wellness

Richard Scolyer: Top doctor remains brain cancer-free after a year (BBC)
A year after receiving a pioneering treatment for glioblastoma, Australian doctor Richard Scolyer remains cancer-free. This experimental therapy, based on his melanoma research, involved a combination of pre-surgery immunotherapy and a personalized vaccine to boost drug efficacy. Despite dealing with severe side effects initially, Scolyer is now in good health, exercising daily, and enjoying life with his family. While experts caution it’s too early to declare success, the results so far are promising and could pave the way for new treatments. [Link]

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Have a great weekend!