Even after today’s decline, the S&P 500 still sits on a year-to-date gain of over 10% indicating just how strong the first five months of 2024 have been.  The Dow, however, has followed a much weaker path as it’s barely holding onto gains for the year at 2.2%.

The scatter chart below shows the YTD performance of the S&P 500 and the Dow in the first five months of the year, and they tend to track each other very closely. Even though the construction of the two indices is very different and 500 stocks comprise the S&P 500 compared to just 30 for the Dow, the performance of the two indices has been very similar over time.  If one index is up in the high-single-digit percentages, the other usually is too.  That’s what makes this year and last year so unique.

The S&P 500 is on pace to outperform the Dow by over eight percentage points in the first five months of this year, and that follows last year when the performance gap was even wider!  As shown in the chart below, the last two years have seen the widest margin of outperformance between the S&P 500 over the Dow. In 1999, the Dow outperformed the S&P 500 by a similar magnitude, but the last two years have been unprecedented in terms of the S&P 500 outperforming the Dow.

The table below shows the YTD performance and weightings of the 30 Dow components (sorted by weighting). Overall, the average stock in the index has rallied 4.25%, so on an unweighted basis, the performance gap isn’t quite as wide, but one of the bigger drags on the Dow this year has been UnitedHealth (UNH). The stock’s weight in the Dow is over 8.5%, and shares have slipped nearly 4% on the year.  Boeing (BA) doesn’t have as large of a weight in the index, but its 30%+ decline has been a big drag as well, while other notable losers have been McDonald’s (MCD) and Home Depot (HD).

Technology has been a large contributor to the S&P 500’s YTD gain, but within the Dow, the sector has a weighting of over 19%, which isn’t small. The only problem is the Technology stocks that comprise the index (shaded in gray).  Regarding tech stocks in the DJIA, outside of Microsoft (MSFT), which has rallied over 14% this year, some of the sector’s other representatives – (we’re looking at you Cisco and Intel) aren’t what most investors would consider cutting edge!

Equities have pared earlier gains and are now up only modestly on the session as of this writing.  Such a slow start to what is unofficially the first day of summer trading (the day after Memorial Day) is not unusual though.  In the charts below, we show the average and median performance of the S&P 500 during each day of Memorial Day week since 1971 when Congress changed its observance to be the final Monday of May.  As shown, the S&P 500 has actually fallen more often than it has moved higher on the Tuesday after Memorial Day with a median decline of 12 bps (average gain of 17 bps).  Fortunately, Wednesday through Friday has tended toward more positive trading with positive performance around 60% of the time for each day.

Using daily intraday data going back to 1983, below we show the composite performance of the S&P 500 throughout Memorial Day week.  This too shows that the holiday shortened week typically gets off to a somewhat slow, albeit positive, start on Tuesday as the gains typically don’t pick up steam until Wednesday.

Again, in spite of slow starts coming back from the holiday, historically the week of Memorial Day has seen the S&P 500 move higher.  In fact, it is a decently strong period relative to the rest of the year.  As shown in the screenshot of our Seasonality Tool below, the median one week performance of the current date ranks in the 76th percentile of all one week periods of the year over the last ten years.  However, lending to the “sell in May and go away” saying, forward one month returns from here have been much more lackluster, ranking in just the 15th percentile.

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:

Influencers Are Saying Sunscreen Causes Cancer. They Are Wrong. (WSJ)
A viral video on social media sparked a debate about the effectiveness and safety of sunscreen, as some influencers and celebrities claim it may cause more harm than good. Despite these assertions, dermatologists and scientific experts stress the importance of sunscreen in preventing skin cancer and other sun-related damage. There are numerous misconceptions about natural sun exposure, homemade sunscreens, and vitamin D production that have been debunked, with experts recommending broad-spectrum sunscreens tailored to individual skin types. [Link]

Microplastics found in every human testicle in study (The Guardian)
Microplastics have been discovered in human testicles, with potential links to declining sperm counts. Researchers found microplastic pollution in all tested samples from humans and even pet dogs, noting a correlation between higher PVC contamination and lower sperm counts in dogs. This discovery aligns with previous findings of microplastics in human blood, placentas, and breast milk, raising concerns about their impact on health. While the exact effects remain uncertain, microplastics have been shown to damage human cells in labs. [Link]

Why the South has such low credit scores (Washington Post)
A recent economics paper revealed a map highlighting low credit scores predominantly across the American South. This phenomenon affects all demographics within the region, leading to higher borrowing costs and limited access to credit. Researchers found that medical debt is a significant factor driving down credit scores in the South. The region has higher levels of unpaid medical bills and a lower rate of Medicaid expansion, which has exacerbated financial struggles. Despite efforts to reduce the impact of medical debt on credit scores, the South’s overall credit health remains adversely affected by its high medical debt burden and lack of broader healthcare coverage. [Link]

The Techno-Patrimonial Welfare State (Phenomenal World)
The Bharatiya Janata Party (BJP) has leveraged welfare policies, particularly Direct Benefit Transfers (DBT), to consolidate its political power in India over the past decade. The strategy channels funds from over 500 welfare schemes directly into beneficiaries’ bank accounts and has grown to reach over 1 billion people. Public policy expert Yamini Aiyar describes this as a move from a rights-based approach to a “techno-patrimonial state,” where welfare is seen as a gift from political leaders rather than a fundamental right, raising questions about the evolving social contract and the implications for Indian democracy. [Link]

Policy & Law

Emory Awards, Then Suspends Students Behind Study-Aide App (GovTech)
Emory University initially celebrated an AI learning tool called Eightball, developed by undergraduates, and awarded the team that developed it $10,000 in a competition. However, concerns about its potential for cheating led to the suspension of the involved students, prompting one to sue the university. The student, anonymously litigating as John Doe, claims the university suspended them despite no evidence of misuse. He argues the tool was promoted and developed with faculty assistance. The lawsuit seeks to overturn the suspension and secure damages, asserting that Emory’s actions will impact his academic and career prospects. A hearing is set for May 29th. [Link]

Georgia QB Jaden Rashada sues Florida coach Billy Napier, among others, over botched $13.85M NIL deal (CBS Sports)
Georgia quarterback Jaden Rashada is suing Florida coach Billy Napier and others over a failed $13.85 million NIL deal that fell apart. The lawsuit, filed in federal court, alleges fraudulent inducement and misrepresentation, claiming Napier and top boosters lured Rashada to Florida with promises they never intended to fulfill. Rashada’s situation highlights the chaotic early days of NIL deals and the potential exploitation of young athletes by wealthy boosters. Rashada’s lawsuit aims to recover lost earnings and address the power imbalance in college sports recruiting. [Link]

Guess Which State Is Exploring Replacing Gas Taxes With Surveillance (MotorTrend)
California is addressing the decline in gas tax revenue due to the rise of EVs by considering a mileage-based use tax. This would replace the gas tax, applying to all vehicles based on miles driven. Caltrans has launched the “California Road Charge” pilot program, allowing volunteers to have their mileage tracked or manually submit odometer readings. The initiative would counteract the $200 million annual revenue loss from EVs, which pay lower registration fees compared to gas taxes from traditional vehicles. The state is exploring these measures to ensure sustainable road maintenance funding as EV adoption increases. [Link]

Shuttered Fisherman’s Wharf restaurants sue SF for millions (SFGATE)
The owner of the historic Fisherman’s Grotto and Tarantino’s seafood restaurants in San Francisco’s Fisherman’s Wharf has sued the city for millions, alleging that COVID-19 restrictions and the homelessness crisis caused a breath of their leases. The lawsuit claims the city owes at least $2 million for renovation costs and additional damages for failing to maintain the area and its aging structures. The Port of San Francisco had attempted to evict the restaurants for $1.4 million in back rent, but the lawsuit argues the city increased rent and neglected necessary maintenance. [Link]

Environmental

This EV builder has given a Land Rover Defender four electric hub motors (Ars Technica)
BEDEO, a British company known for converting diesel vans into hybrids, has unveiled an electric conversion for the classic Land Rover Defender. Using in-wheel motor technology from Protean, BEDEO’s approach saves space and retains the Defender’s iconic character. The converted Defender, equipped with a 75-kWh battery and four hub-mounted motors, offers 153 miles of range and a smooth, regenerative braking system. This concept demonstrates the potential for more eco-friendly “restomods,” with BEDEO planning to offer its technology to other businesses for broader applications. [Link]

Ocean Heat Content (U Miami)
The Ocean Heat Content (OHC) quantifies the thermal energy stored in a specific volume of the ocean, calculated from the surface to the depth where the temperature is 26°C. If the ocean temperature is below 26°C, the OHC is zero. The Main Development Region (MDR) of the Atlantic, where most major hurricanes originate, currently has an OHC above historical norms, which could imply increased hurricane activity this year. [Link]

Economic Trends

Majority of Americans wrongly believe US is in recession – and most blame Biden (The Guardian)
A poll reveals that nearly 3 in 5 Americans mistakenly believe the US is in a recession, many blaming the Biden administration. Of the respondents, 56% think the US is in a recession despite GDP growth and 49% believe unemployment is at a 50-year high. 49% also believe the S&P 500 is down on the year (it’s up over 10%). Though significantly lower than its post-Covid peak, inflation remains a concern for 72% of respondents as they continue to feel the pressure of higher prices that are still climbing, just at a slower pace now. There is obviously a disconnect between economic data and public sentiment, with many Americans feeling financially strained despite positive economic indicators. [Link]

Palm Beach housekeepers are making $150,000 a year due to massive demand from the wealthy (CNBC)
The surge of wealthy individuals relocating to Florida from high-tax states has spiked the demand for household staff, particularly housekeepers, in elite areas like Palm Beach. This has led to bidding wars and big salary increases, with experienced housekeepers earning between $120,000 and $150,000 annually, and some making up to $250,000 with overtime. Staffing agencies report that typical hourly pay has jumped from about $25 in 2020 to $45-$50 today. The shortage is so severe that agencies are considering opening schools to train more high-end housekeepers as they are overwhelmed with current placement demands. [Link]

Grocers are finally lowering prices as consumers pull back (Washington Post)
Consumers have been struggling with rising grocery costs, leading major retailers like Target, Aldi, and Walmart to implement price cuts and introduce more affordable product lines. Target recently announced price reductions on 5,000 items to save consumers millions, while Aldi cut prices on 250 items, and Walmart introduced its new Bettergoods line, featuring affordable, trendy food items. These changes come as inflation and elevated interest rates have dampened consumer spending, putting pressure on retailers. Critics argue that corporate price gouging and industry consolidation have contributed to rising prices, prompting consumers to incur debt to afford essentials. [Link]

Merrill Lynch Ups Headhunter Bounties Amid Recruiting Push (AdvisorHub)
Merrill Lynch is increasing headhunter referral fees to 10% of annual revenue for successful placements in 34 targeted markets, including key areas like Los Angeles and some rural locations. The firm already raised referral fees earlier this year from 6% to 8%. Merrill’s recent recruiting successes, deemed “long overdue,” include important hires from First Republic. [Link]

AI & Technology

On self-driving, Waymo is playing chess while Tesla plays checkers (Ars Technica)
Tesla’s Full Self Driving (FSD) software has had major updates, but it still lags behind Google’s Waymo in driverless technology. A direct comparison of both systems shows Tesla’s FSD requires more human intervention than Waymo’s driverless cars. Waymo, which began its driverless service in 2020, employs remote operators to assist vehicles in complex situations, ensuring safety in environments where Tesla’s FSD might struggle. While Tesla fans anticipate a breakthrough with FSD, the road to fully autonomous vehicles is complex and challenging, and it still has to jump some hurdles to match Waymo. [Link]

China builds Xi Jinping AI chatbot to control ‘thoughts’ of citizens (The US Sun)
China has developed an AI-powered chatbot, “Chat Xi PT,” trained extensively on the thoughts and beliefs of President Xi Jinping, as the country blocks access to US rivals like ChatGPT. The chatbot has been fed literature from the Cyberspace Administration of China (CAC), ensuring it reflects state-approved views and avoids subversive content. While currently restricted to a research center, this chatbot might eventually become publicly accessible, which would mark a big step in China’s AI and political position. [Link]

Crime

Hacker Breaches Scam Call Center, Warns Victims They’ve Been Scammed (404 Media)
A hacker claims to have infiltrated the scam call center Waredot, stealing its source code and notifying its victims via email. The email urged recipients to seek chargebacks for the overpriced and ineffective antivirus software sold by Waredot. This breach is part of a growing trend where vigilante hackers disrupt scam operations, often publicized by popular YouTube channels. The hacker, motivated by the company’s continued operations despite a raid, wiped Waredot’s data and exposed its fraudulent practices. [Link]

An unusual heist seems to be unfolding at Taco Bell (SFGATE)
In the early 2000s, artist Mark Smith took on the project of creating paintings for Taco Bell locations across the US. Smith’s Basquiat-like artworks were initially met with skepticism from corporate executives but were ultimately approved and distributed in 2003. These unique pieces, designed to feel like real art rather than branded messages, became highly sought after over time, with some being stolen and sold on the underground art market for up to $10,000. Smith’s paintings, including “Drive Thru Man,” “Mothman,” and “Empty,” blend artistic expression with commercial aesthetics, making them a valuable part of Taco Bell’s decor. [Link]

Investments

Bonds’ Decades-Long Lead Over Gold Vanishes as Debt Worries Grow (BNN Bloomberg)
US Treasuries, long considered the ultimate safe-haven investment, have been overshadowed as gold emerges as a more attractive option for investors. The Bloomberg Treasury Total Return Index is experiencing its third annual decline in four years, while gold has seen a 15% increase this year as investors become increasingly concerned over rising US debt. Despite rising real interest rates, gold’s value has been bolstered by central bank purchases, such as China’s continued investment in gold over US Treasuries. [Link]

Starwood REIT Tightens Redemption Limits on Liquidity Crunch (BNN Bloomberg)
Billionaire Barry Sternlicht’s $10 billion Starwood Real Estate Income Trust (SREIT) is limiting investor withdrawals to 0.33% of net asset value per month to preserve liquidity and avoid selling properties at a loss. This decision comes as redemption requests surge and available liquidity stands at just $752 million. It reflects ongoing struggles in the commercial real estate market, with property values down 21% since their peak in March 2022 due to rising interest rates. While Sternlicht believes the market will rebound, the trust will wait for better conditions before allowing larger withdrawals. [Link]

Travel

Bark Air launches as first-ever airline catered to dogs (The Hill)
Bark Air, a new airline designed exclusively for dogs and their human companions, launched on Thursday. Created by pet company Bark, this airline revolutionizes pet travel by allowing dogs to fly comfortably without being confined to cargo holds or crates. The “white paw service” offers first-class amenities for dogs, including treats, earmuffs, and beverages, on Gulfstream G5 jets with no breed or size restrictions. Each ticket includes one accompanying human, with additional passenger tickets available. Your first question might be: how much are tickets? Flights, which have already sold out for much of May and June, cost around $6,000 for domestic travel and $8,000 for international trips. [Link]

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