Case Shiller home price data published by S&P CoreLogic was released earlier this week for July 2023 (it comes out on a two-month lag).  As shown below, 19 of 20 cities posted month-over-month gains, with the National index up 0.6% MoM and up 0.98% year-over-year.  Las Vegas saw the biggest monthly gain at 1.12%, while Portland was the only city to see a monthly decline.

The big news from the report was that the National index and ten of twenty cities once again hit new all-time highs, erasing declines seen from mid-2022 through early 2023.  The National index saw home prices fall 5% from its prior high last June to its low this January, but it has bounced back by 6% since then to notch new highs.  The ten cities to also make new highs were: New York, Minneapolis, Miami, Detroit, DC, Cleveland, Chicago, Charlotte, Boston, and Atlanta.

Four cities remain 5%+ below their prior highs: Phoenix (-6.7%), Las Vegas (-7.2%), Seattle (-10.1%), and San Francisco (-10.8%).

Below is a look at how much home prices have jumped from their lows made either at the end of 2022 or earlier this year.  As shown, San Diego, Detroit, and Chicago have seen home prices rally the most at 9%+, while Tampa, Las Vegas, and Phoenix have rallied the least at just 4%.

Below we show the actual home price index levels for the twenty cities plus Case Shiller’s three composite indices.  Cities highlighted in green are the ones that are back to all-time highs.  With interest rates rising so far so fast from very low levels, existing mortgage holders have frozen up, which has frozen the market of homes for sale.  The extreme lack of supply has caused prices to increase, not decrease, thus far, but barring a pretty big drop in mortgage rates. we don’t see this as sustainable in the months and years ahead.

When it comes to seasonal patterns in the market, one less widely known pattern is related to the Jewish calendar regarding Rosh Hashanah (the Jewish New Year) and Yom Kippur (Judaism’s holiest day of the year). The old saying says to sell Rosh Hashanah and buy Yom Kippur as, often, it tends to be a weak time of year for the market. We’ll leave it to others to try and explain the reasons behind the axiom, but the actual results don’t refute the pattern.

The table below shows the performance of the S&P 500 from the close before the start of Rosh Hashanah to the closing price on the day Yom Kippur ends from 2000 through 2022. During that span, the S&P 500’s median performance during this period has been a decline of 0.50% (average: -0.79%) with positive returns less than half of the time (43%).

While equity market returns have been weak during the period between these high holy days of the Jewish calendar, market returns for the rest of the year have been positive. In the twenty-two prior years shown, the S&P 500’s median rest-of-year performance has been a gain of 6.07% with gains 74% of the time. In the table, we have also shaded those years where the S&P 500 bucked the market headwinds and posted positive returns during this period, but it tended to have no impact on performance for the remainder of the year

One word of caution behind the possible explanations for the equity market’s weakness in the period between Rosh Hashanah and Yom Kippur is that they also occur during September which is already a weak time of year for the market to begin with.

A couple of weeks ago, we highlighted how IPO issuance had finally begun to ramp up after a complete drought since late 2021.  Arm Holdings (ARM) was one of the stocks to kick off that new slate of issuance.  In a year of massive outperformance for its industry, the British semiconductor designer priced with the largest market cap of recent IPOs, currently valued at $52 billion.  After initially pricing at $51/share, ARM exploded into the high $60s in its first two days of trading on the secondary market, but it gave up all of its post-IPO pop by the end of last week and was right back down near $51.

Grocery delivery app Instacart (CART) was the next offering.  Debuting last Tuesday, CART similarly traded well above its IPO price of $30 in its first day of trading, but those high prices were only temporary.  Like ARM, Instacart also gave up all of its post-IPO pop to trade right back down to its IPO price by the end of last week.

That left marketing automation platform Klaviyo (KVYO) as the most recent major IPO of the week.  Similar to ARM and CART, the stock opened for trading well above its IPO price of $30.  Shares then plummeted on an intraday basis to nearly touch its IPO price, but unlike ARM and CART, we saw some buyers step into KVYO towards the end of last week.

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:
Black Friday Bust. “Black Friday 1869″ occurred on September 24, 1869, after Jay Gould and James Fisk had planned to corner the gold market and drive up its price through political influence to discourage the government sale of gold. When President Ulysses S. Grant became aware of the situation, he ordered the sale of $4 million in government gold which broke the attempted cornering of the market.  As gold prices plummeted a panic ensued which rippled into the stock market.

There’s a great account of this story in the Jay Gould biography, American Rascal: How Jay Gould Built Wall Street’s Biggest Fortune.

Science & Technology

FDA advisers to discuss future of ‘artificial womb’ for human infants (MSN)
Independent advisers to the US Food and Drug Administration are discussing the possibility of creating artificial wombs for extremely premature babies. The device has never been tested on humans, but if found effective, it would help address major health issues with premature babies and improve survival rates. The technology has been tested with animals, and now the FDA committee is discussing what data scientists would need to demonstrate success in human trials. [Link]

How Big Tech AI models nailed forecast for Hurricane Lee a week in advance (Washington Post)
Google, Microsoft, NVIDIA, and Huawei (Chinese) have all published academic articles claiming their AI weather models are now at a competitive level with the “gold standard” European model. These AI models are much faster and cheaper to operate than traditional government-run models, relying on machine learning to recognize patterns in historical weather data and generate forecasts based on current conditions. That’s exactly what AI models did in the lead-up to Hurricane Lee making landfall in Nova Scotia, highlighting a profound emergence of AI in meteorology. AI models have the potential to revolutionize weather forecasting, allowing for more accurate and detailed predictions, particularly for extreme weather events.  Not in the article, however, is that while the AI model was accurate within two days of landfall (as were the other traditional models), further out than two days, the potential outcomes were all over the place. [Link]

Pearl Harbor dataset holds clues to how WWII may have shaped weather data (Popular Science)
Digitized weather data from US Navy ships during the attack on Pearl Harbor in World War II is offering insights into how the war influenced daily weather observations. The recovered datasets show changes in observation practices, such as taking more measurements during the day to avoid enemy detection. That practice may have contributed to slightly warmer temperature recordings during the war, which could help scientists better understand temperature patterns since the 1940s. [Link]

Human Cells Display a Mathematical Pattern That Repeats in Nature and Language (Smithsonian Magazine)
Scientists have estimated how many cells make up the human body, finding that men have around 36 trillion cells, women have approximately 28 trillion cells, and a 10-year-old child has roughly 17 trillion cells. Now having more knowledge about cell frequencies in the body, scientists have found critical information for understanding human health and diseases, such as cancer. The study also revealed a mathematical pattern based on cell size and mass, similar to patterns found in other fields, suggesting a common underlying mechanism that researchers are still investigating. [Link]

Housing

Repeat after me: building any new homes reduces housing costs for all (Financial Times)
The “supply skepticism” movement argues against new market-rate housing because it may increase rents and prices locally. However, economic principles show that increased supply generally brings down prices. While the supply skeptics suggest that only affordable housing can increase affordability, recent studies have shown that building market-rate housing can lead to more affordable housing becoming available. Policies aimed at increasing housing supply in cities like Auckland and Minneapolis have demonstrated that increased housing supply can help lower rental prices. [Link]

Lennar reveals the next big headwind for housing supply (Yahoo Finance)
As highlighted in our Conference Call Recap on Lennar earlier this week, the company has expressed concerns about the limited and increasingly expensive availability of developed land for housing. Homebuilders like Lennar are grappling with the high costs associated with land acquisition, which can squeeze cash flows and affect their balance sheets. The broader concern is that land scarcity could further limit available housing inventory across the country, impacting the housing market and potentially exacerbating issues related to housing affordability and supply. [Link]

A Turkish pilot visited his investment property in Baltimore. He was shocked by what he found (The Baltimore Banner)
Property Invest USA, a Miami-based company, facilitated property transactions for buyers in Turkey and Central America, offering renovated rowhomes in Baltimore with tenants paying rent. Several buyers have recently reported that the rent payments have stopped, and Property Invest USA has been unresponsive to their inquiries. A Turkish pilot visited his investment property to find out what was going on, and upon arrival, found a home without a tenant and an overgrown lawn. When he went inside, the home looked nothing like he had been shown. Other homes sold by the company are vacant and in disrepair. The company has blamed the issues on pandemic-related burdens and says it is working to amend the problems, which might be tough to believe when you see the pictures. [Link]

Investments & Consumer Trends

Goldman’s Pitch to Rich Clients: Hey, Buy a Piece of This Sports Team! (WSJ)
Goldman Sachs is launching a “sports franchise” unit within its investment banking division, aiming to offer wealthy clients opportunities to invest in private sports teams, stadiums, and other sports-related deals. While the bank did not specify which teams clients might invest in, the offering will include both major and minor league teams. Investing in sports teams provides the allure of owning a unique status symbol with limited supply. Commercial banks are cautious though, as concerns of a downturn in commercial real estate hitting sports venues rise. [Link]

Why the Resale Market for Old, Cheap Perfume Is Skyrocketing (Bloomberg)
Vintage fragrances, particularly those from the 90s, are gaining popularity among collectors and nostalgic consumers. Discontinued scents from high-end brands have always been sought after, but even more affordable fragrances are now in demand. eBay data shows that listings with “90s fragrance” saw a significant sales increase in August compared to the previous year. Millennials seeking to relive their youth and younger generations looking for unique scents are driving up prices for these vintage fragrances, creating a niche market. Scientists point to a strong link between our sense of smell and nostalgia. [Link]

BlackRock, State Street Among Money Managers Closing ESG Funds (AdvisorHub)
BlackRock, State Street, and others are closing ESG funds due to political backlash. While the US had 656 sustainable funds as of June 30, the number of liquidations is increasing compared to previous years.  More US sustainable funds have closed in 2023 than in the prior three years combined. The trend reflects the underperformance of ESG funds, weaker demand, and persisting anti-ESG rhetoric. Firms are shifting focus as they close these funds and open more specific sustainable investment strategies. [Link]

Labor & Employment

Rebound in Immigration Comes to Economy’s Aid (WSJ)
A historic rise in immigration to the United States is helping ease labor shortages and wage and price pressures, potentially making it easier for the Federal Reserve to bring down inflation without a significant rise in unemployment. After years of slow immigration inflow, which was further hampered by the COVID-19 pandemic, the U.S. is now experiencing a notable rise in foreign-born workers. Biden Administration policies towards both legal and illegal immigration as well as conflicts abroad have also made for a higher inflow of immigrants. While there are other factors at play, an increase in the supply of labor should lower the price of said labor. [Link]

How Auto Executives Misread the UAW and Ignited a Historic Strike (Bloomberg)
United Auto Workers has initiated a large-scale strike at GM, Ford, and Stellantis factories, demanding 40% pay increases over four years and a 32-hour work week, which is unprecedented in the US manufacturing industry. The strike is disrupting output and still has plenty of room to do more damage. It also represents a shift in the American worker threatened by AI and the increasing wealth gap. On a broader level, the strike poses risks for the US auto industry’s competitiveness, President Biden’s EV agenda, and potentially even the livelihoods of American workers everywhere. [Link]

International Relations

Long View: The 16th-Century Trade Route That Brought China to Mexico (Americas Quarterly)
The Manila galleon trade route had a profound influence on the Americas since the 1600s. Tens of thousands of Asians settled in what was then called New Spain, bringing with them various occupations and trades. The trade route introduced the region to Chinese items like porcelain and Asian fabrics. It also led to the emergence of the first global currency, the peso, which influenced the development of currencies like the yuan and yen. As China builds relations in Latin America today, it can draw on centuries of trade dating back to a time before American influence. [Link]

‘Credible evidence’ India behind alleged assassination of Sikh leader, says Trudeau (The Guardian)
The Canadian government launched an investigation into credible allegations that link India to the murder of Canadian Sikh leader Hardeep Singh Nijjar. India has called the claims absurd. This situation is expected to further strain relations between Canada and India, with India expelling a senior Canadian diplomat in response to Trudeau’s claims. Just a week ago, there seemed to be existing tension between Trudeau and Modi at the G20 in New Delhi. [Link]

Inflation

The Fed’s got inflation dead wrong. That’s why a 2024 recession is likely, says Duke professor. (MarketWatch)
Campbell Harvey, the Duke University finance professor known for his work on the yield-curve recession indicator, argues that the Fed’s inflation gauge, which heavily weights shelter costs (reflecting housing prices), does not accurately represent the current inflationary environment. Harvey warns that aggressive rate hikes by the Fed to combat inflation could risk driving the US into a recession. His yield-curve inversion model, with a perfect track record in predicting recessions, signals the possibility of an economic downturn in the coming months. [Link]

Energy & Environment

China’s Power Grid (Syncretica)
This article discusses the need for modeling China’s energy grid in the context of its rapidly growing renewable energy capacity and energy storage infrastructure. China’s transition to solar and wind energy, along with significant energy storage development, should lead to a rapid reduction in carbon emissions; however, there are discrepancies between official data and actual solar energy output. Efficient allocation of renewable resources can reduce curtailment rates and reliance on fossil fuel imports like LNG and coal. China’s energy transition has geopolitical implications, as well as impacts on global energy balances, inflation, security, and climate goals. [Link]

Collectibles & Currency

Rare Great Depression-era $10,000 bill sells for $480K — but who’s on it? (New York Post)
A rare $10,000 bill dating back to the Great Depression era was sold at an auction for a record-breaking $480,000. The bill, issued in 1934, features a portrait of Salmon P. Chase, President Lincoln’s Secretary of the Treasury. It is one of the highest-denomination notes ever publicly circulated in the US, with the highest denomination currency issued since 1969 being the $100 bill. [Link]

Education

Parents Are Paying Consultants $750,000 to Get Kids Into Ivy League Schools (Bloomberg)
Parents and students are willing to go to great lengths and spend substantial sums to secure a spot at elite colleges and universities. Acceptance rates at top institutions have plummeted (as the number of applications has surged), with some schools admitting fewer than 5% of applicants. Parents will pay college consultants upwards of $750,000 to help their children through the application process, starting as early as seventh grade! Despite concerns about the cost of education, many families see the potential return on investment from an elite college degree as worth the expense.  Most of us would agree that there are probably better ways to spend $750K. [Link]

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Have a great weekend!

Today marks the 265th day of the year, meaning there are just 100 days left in what still seems like a new year.  Heading into the home stretch, the market certainly looks tired as stocks have erased much of the gains they posted in the late spring/early summer rally. If history is any use, though, equity performance in the final 100 days of the year tends to be positive.  In the top chart below, we show the S&P 500’s performance during the last 100 days of the year dating back to 1945, and for each year where the market was up over 10% heading into the last 100 days, we colored the bars dark blue.  The overwhelming majority of the time, the S&P 500 traded higher during the last 100-day homestretch, but there were some big exceptions, notably 1987 (-22.7%), 2008 (-25.2%), and 2018 (-14.4%).  In 1987 the S&P 500 was up 31% heading into the last 100 days, in 2008 it was down 18% heading into the last 100 days, and in 2018, it was up 9% before the plunge.  In other words, a large plunge could come at any time.

Even taking the large plunges described above into account, the S&P 500’s median gain in the last 100 days of the year has been a gain of 4.1% with positive returns 78% of the time, and for years when the S&P 500 was already up 10%, the rest-of-year returns are nearly identical.  So as we get ready to wrap up 2023, the wind is at the market’s back, although just because the winds are favorable doesn’t mean the boat still can’t spring a leak. Fair Winds and Following Seas!