While the conflict between Israel and Palestine is of course still a risk, especially if worries of Iran involvement proves to be more concrete (which we discussed in today and yesterday’s Morning Lineups as well as last night’s Closer), markets appear to be largely looking past the events.  Equities have rallied broadly over the past couple of sessions, but some of the best performers have of course been those stocks whose businesses would be most impacted by the conflict.  Yesterday, the S&P 1500 Aerospace & Defense Industry rallied 5.45% on the day.  That marks the biggest single-day jump in the group since November 9, 2020 and the 20th best day since 1995.

Amazingly, that single-day gain far surpasses other days when war was front and center in the news. For example, last year when Russia invaded Ukraine, the group only rallied 2.21% on the first day of the invasion (although that invasion was more telegraphed so the group rallied ahead of the news).  If you look back to various points of the start of the wars in Iraq and Afghanistan, again, the industry did not see nearly as large of gains. For example, on September 20, 2001 when Bush announced the “War on Terror” the group fell 5.93% on the day, and when the US went into Afghanistan (10/7/2001) and later Iraq (3/19/2003), the group gained 1.8% and 0.8%, respectively. When looking to other daily gains of 5%, predominately those have simply occurred during volatile market periods (i.e. Dot Com Era, Financial Crisis, and COVID Crash) rather than times when news headlines would justify the move.

In the table below, we show each member of the S&P 1500 Aerospace and Defense industry as well as their performance from the broad market high at the end of July through last Friday and performance yesterday. Most of these names fell from the end of July through last Friday, and Hexcel (HXL) was the only one to not rise yesterday.  Meanwhile, Northrop Grumman (NOC) was the biggest winner with an 11.43% gain.  L3Harris (LHX) was also not far from a double-digit daily gain while Huntington Ingalls Industries (HII), Lockheed Martin (LMT), General Dynamics (GD), and Mercury Systems (MRCY) were all up over 5%.

Below we break down each time the Aerospace and Defense industry has rallied at least 5% in a single day without having done so in the prior three months. As shown, yesterday was not the largest jump of those prior 8 instances.  Historically, median performance has been stronger than the norm over the next day to three months out with further gains more often than not.

Being Columbus Day, the stock market is open, but bond markets are shuttered for the Federal holiday.  As we noted in today’s Morning Lineup, to get a read on the moves in Treasuries we can resort to ETFs like the iShares 20+ Year Treasury ETF (TLT).  The ETF has gotten pummeled over the past several months, but on the geopolitical news of the weekend, TLT is putting at least a small dent into recent losses. As of this writing, TLT is up 1.4% today which puts it on pace for the best day since August 23rd. Not only that, but if the gains hold throughout the rest of the day, it would be TLT’s best Columbus Day since the ETF began trading 20 years ago. That follows last year’s 1.55% Columbus Day decline for TLT which was the worst performance on the holiday since the ETF’s inception.

Overall, TLT’s performance on Columbus Day has historically seen mixed returns with an average decline of 6 bps on trading volume that has been well below average. Since its inception in 2002, volume in TLT has never been above its 200-DMA on Columbus Day, and in more than half of all years volume has been less than half of its daily average

For equities, the trend is similar. Since 2002, median Columbus Day volume has been 57% of the 200-DMA while the median daily gain on the day was eight basis points. There have also only been five years when volume was above average.  One of those years was 2008 when the ETF surged 14.52% on beliefs that the worst of the financial crisis was in the rearview. To this day, Columbus Day 2008 remains the sixth-largest single-day gain in the S&P 500’s entire history dating back nearly a century.

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:

Int’l Relations & Globalization

China Is Suffering a Brain Drain. The U.S. Isn’t Exploiting It. (NYT)
Chinese professionals, including tech experts, are increasingly leaving China to escape political oppression, economic challenges, and demanding work cultures. Many cite reasons such as dissatisfaction with the social and political environment, especially after constitutional amendments to eliminate the presidential term limit in China, and the grueling “zero-Covid” campaign. They are relocating to countries like the UK, Canada, Europe, and Nordic countries due to better work-life balance, social benefits, and more welcoming visa policies. Interestingly, they aren’t relocating to the US. China is experiencing a brain drain, but the US hasn’t been able to capitalize on it due to the complicated immigration processes and other factors. [Link]

Exclusive: US warned China to expect updated export curbs in October – US official (Reuters)
The Biden administration has informed China of its plans to further restrict the export of AI chips and chipmaking tools as part of an effort to stabilize relations between the two countries. The Commerce Department is revising export restrictions to align with new Dutch and Japanese rules and close loopholes on the highly valued chips. This advance notice is part of the administration’s broader attempt to improve relations with China while aiming to prevent the use of U.S. technology to strengthen the Chinese military. [Link]

Post-neoliberalism, the baby, and the bathwater (Karthik Sankaran)
Neoliberalism aimed to reduce the role of the state relative to markets, including the deregulation of domestic and international corporate activities. While there was bipartisan support for globalization in the 1990s and early 2000s, skepticism has grown recently due to concerns about maintaining US military technology leadership, supply chain resilience, and job offshoring. The article argues that globalization has been largely positive for developing countries, particularly in Asia, by allowing participation in manufacturing supply chains and technological complexity. [Link]

Weight Loss Wave & Health Trends

How weight loss drugs like Ozempic could radically reshape the food business (Axios)
The increasing popularity of weight loss drugs like Ozempic in the United States is leading to changes in consumer behavior, with people buying less food, particularly high-calorie snacks and fast food. This trend, if it continues, could have a significant impact on the food industry, including companies like Pepsi, McDonald’s, and Altria, which may see reduced demand for their products. While it’s still early to predict the full extent of these changes, investors and food industry executives are closely monitoring the situation. However, there are uncertainties about how long individuals will stay on these medications and their long-term effects. [Link]

Weight-Loss Drugs Estimated to Save Airlines Millions (Bloomberg)
Airlines are constantly looking for ways to reduce weight on flights to save on fuel consumption. For perspective, it’s estimated that United Airlines could save $80 million annually if the average passenger weighed 10 pounds less. Now, there’s growing interest in the potential benefits of weight loss medications like Ozempic in this context. Airlines have tried several methods to cut the weight of their planes in the past, but in an environment with fuel prices on the rise and a third of adults being obese, estimates say the global market for such medicines could be worth more than $100 billion. [Link]

UK prime minister wants to raise the legal age to buy cigarettes in England so eventually, no one can (Yahoo News)
Rishi Sunak, the UK Prime Minister has proposed gradually increasing the legal age for buying cigarettes in England by one year each year, with the ultimate goal of making it illegal for all. The goal is to prevent teenagers who are currently 14 or younger from ever being able to purchase cigarettes in England. Smoking would not be criminalized, and the phased changes would not affect those who are already of legal age to buy cigarettes. The government is also looking into similar restrictions for e-cigarettes. The move comes as part of efforts to reduce smoking rates and related health issues in the country. [Link]

Economic Trends

Job Seekers Increasingly Interested in Seasonal Work, but Employers Aren’t (Indeed Hiring Lab)
Despite a 19% rise in searches for seasonal jobs this year compared to 2022, seasonal job postings are down 6%. In the post-pandemic world, job searchers are becoming more comfortable with in-person seasonal work, but employers in industries typically reliant on seasonal workers are confident in their current staffing levels, as suggested by the decline in job postings. Only 3% of current seasonal job posts mention an urgent need. The research indicates a broader cautious start to the 2023 holiday hiring season. [Link]

‘Frustrating’ Revisions to Jobs Data Slow Wall Street Trading (WSJ)
Since July, every monthly jobs report from the federal government has experienced a downward revision. That’s a record that dates back to 1979, or 44 years. The series of negative revisions has led some traders to approach the data with caution. While the Labor Department’s monthly jobs data has been strong, the revisions are complicating Wall Street’s view that the economy’s strength will lead to higher interest rates. Many are getting the impression that the jobs market is deteriorating faster than expected and that growth is not as sustainable as originally thought. As a result, fewer stock trades have occurred on job report release days. [Link]

Business Changes & Challenges

So long toilet paper squares? Scalloped-edge coming from Charmin for better wipe (Cleveland.com)
Procter & Gamble (P&G) has announced a significant change in the design of its Charmin Ultra Soft toilet paper rolls, the first major redesign in 100 years. The company is replacing the traditional perforation line on square sheets with a scalloped edge to offer a smoother tear experience. This redesign, called “Smooth Tear,” aims to address consumer frustration when they can’t get a clean tear, which leads to additional toilet paper usage and potential waste. [Link]

Rivian’s Quest to Build the Ultimate Truck Burns Through Billions (WSJ)
Rivian, the electric vehicle startup, is grappling with profitability challenges, reporting a loss of $33,000 on each vehicle sold in the second quarter. Despite selling innovative EVs, the company’s high production costs, expensive design choices, and in-house components have strained its finances. To achieve profitability, Rivian is focusing on cost-cutting measures and plans to launch a new generation of electric SUVs in 2026 to increase sales volumes. [Link]

SPAC shell games will keep hiding the ball (Reuters)
Better, an online mortgage lender that went public through a SPAC in August 2021, is now seriously underperforming its revenue projections, highlighting a trend among SPACs. Many SPACs made optimistic projections during their deals but are falling short of expectations, with some being valued at much less than their initial projections. The lack of scrutiny in the SPAC process, combined with misaligned incentives for sponsors and targets, has contributed to this issue. While the SEC has proposed new rules to govern SPAC transactions, they have not been implemented yet, leaving room for further issues. [Link]

The New Jobs for Humans in the AI Era (WSJ)
Despite the anxiety AI is causing with concern to job security, it is also creating new job opportunities, including in-house developers who fine-tune large language models for specific industries, “reskillers” who help individuals adapt to evolving technology, AI psychotherapists who interpret AI models’ reasoning, and prompt engineers who provide instructions to AI systems in plain language. The in-depth summary of positions like these demonstrates how humans can work alongside AI to enhance its capabilities and ensure effective use in various fields. [Link]

US ad revenue at Musk’s X declined each month since takeover (Reuters)
Since Elon Musk took over at X, formerly Twitter, monthly ad revenue has declined year-over-year each month. Each month has been a significant decline too, we’re talking about north of 55% in the wrong direction. If you recall last weekend’s Brunch Reads, CEO Linda Yaccarino addressed criticism concerning the company’s stance on freedom of speech that may facilitate harassment on the platform. Advertisers have been wary of the changes occurring at the social media company. Yaccarino says that 90% of the top advertisers returned to X in the last three months after a fall-off and aims to turn a profit by early 2024. [Link]

Savings & Retirement

Millennials on Better Track for Retirement Than Boomers and Gen X (WSJ)
Estimates say that Millennials will be able to replace almost 60% of their preretirement income with Social Security and savings from 401(k)s and IRAs, a better mark than Gen X and young Baby Boomers who are likely to replace roughly 50% of their paychecks in retirement. The adoption of automatic enrollment in 401(k) plans has helped younger workers start saving earlier, as some suggest the lack of financial education makes many oblivious to retirement savings. While it is moving in the right direction, it doesn’t mean that Americans are saving enough to support their retirements and that’s a trend that’s especially true amongst lower-income workers who are less likely to have access to retirement savings plans. [Link]

Cheese Appreciation

If You Care About Cheese, You Should Get a Cheese Grotto (Eater)
The Cheese Grotto, designed to store and age cheese under optimal conditions, is becoming popular among cheese enthusiasts. It allows users to store cheese unwrapped and offers an elegant way to display and serve cheeses to guests. As artisanal cheese consumption grows in the US, tools like the Cheese Grotto are helping people store and enjoy their cheese collections with greater ease and appreciation. [Link]

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Have a great weekend!

When you think about volatility in various asset classes, crypto is typically considered the most volatile, and based on how it has traded over the last seven years, the reputation is well deserved. Since the start of 2017, when bitcoin’s price first crossed above $1,000 through now, bitcoin’s average daily percentage move has been 2.7% (chart below). This year, though, the average daily percentage move has been significantly less at a subdued 1.57%, and just recently, its average daily move over the prior two months dropped below 1%.  That’s less volatile than the treasury market! There’s still three months left in the year, but barring some major volatility, bitcoin is on pace for its least volatile year in terms of day-to-day volatility on record. As the years have progressed, bitcoin has clearly become a more seasoned asset class.

Another illustration of bitcoin’s growing ‘maturity’ is how closely it has traded to its 200-day moving average recently. While the largest cryptocurrency experienced a sharp decline in mid-August, it has closely hugged its 200-day moving average (DMA) ever since.

In fact, for 59 days now, bitcoin has traded within 10% (above or below) of its 200-DMA. That’s a record.  After years of bouncing off the walls like a ten-year-old on a sugar high, bitcoin looks like it may have finally grown up!