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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Foreign Affairs

Tiny Lithuania Could Change How The World Handles China by Akbar Shahid Ahmed (Huffpost)

Chinese diplomats have made pulling tiny Lithuania to heel a major policy priority, but the tiny Baltic state, used to domination from its large neighbor, is having none of it. [Link]

TSMC founder Morris Chang says globalization ‘almost dead’ by Cheng Ting-Fang (Nikkei Asia)

At an event in Phoenix, Arizona marking the first equipment installation at a $40bn advanced chip fab that represents years of effort to onshore critical industries to the US, the Taiwanese industrialist blamed geopolitics for shifts away from free trade. [Link; soft paywall]

Selling

Surging retail theft could force Walmart to close stores and raise prices, CEO Doug McMillon warns by Thomas Barrabi (NYPost)

A vague gesture towards closing stores is part of a retail industry effort to highlight dollar increases in “shrinkage” or inventory lost to thieves. National data suggests shrinkage has not risen as a percentage of revenue in recent years. [Link; auto-playing video]

Auto Dealers Gird for Softening Demand Amid Higher Rates, Uncertain Outlook by Nora Eckert and Mike Colias (WSJ)

After a two year boom fueled by low rates and soaring demand, auto dealers are facing a big shift that has dealers preparing for the worst: higher payments, too much inventory, and a weak economy are all potential problems. [Link; paywall]

Congress

Sinema leaves Democratic Party, registers as independent by Daniela Altimari and Herb Jackson (Roll Call)

In a desperate bid to save her seat, Arizona Democrat Sinema has retreated from the Democratic Party (though she will keep her committee assignments). She has a lower approval rating with her own party than the rest of the Arizona electorate. [Link]

How Kevin McCarthy Could Lose The Election For Speaker Of The House by Nathanial Rakich (538)

An unusually tight House majority and an unruly caucus could keep frontrunner Kevin McCarthy out of the Speakership and cast the body into chaos at the start of the year. [Link]

Building Permits

A Sense of Where You Are by Devin Bunten (Unplanned Ideas)

The current makeup of American cities and suburbs is a direct function of policy choices made 70 years ago today, themselves driven by the need to meet a massive shortfall in housing construction, a desire for racial segregation, and a new technology in the form of the automobile. [Link]

Climate Hawks Should Have Given Joe Manchin His Pipeline by Eric Levitz (NYer)

Progressive politicians and lobbyists likely made the wrong choice (even based on their own policy goals) when they declined to trade allowing more fossil fuel infrastructure for a failed effort to make decarbonized infrastructure easier to build. [Link]

Food

Is Chicken Birria Authentic? by Javier Cabral (L.A. Taco)

By far the most famous form of birria is the Jalisco-derived braised goat recipe that taco eaters adore. But more unusual – and no less authentic – forms of birria can be found all over Mexico. [Link]

Social Media

Twitter’s Rivals Try to Capitalize on Musk-Induced Chaos by Kalley Huang (NYT)

Social media sites ranging from upstart Post to open source Mastodon are trying to move into the real estate put at risk by antics of Twitter’s new CEO Elon Musk. [Link; soft paywall]

Kids Don’t Want Cash Anymore–They Want ‘Robux’ by Sarah E. Needleman and Sarah Donaldson (WSJ)

Wildly popular online gaming platform Roblox is a key destination for pocket money these days as children prefer buying digital goods to heading down to the store. [Link; paywall]

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Have a great weekend!

Sentiment tipped over before the S&P 500’s rough start to December. Without the market giving investors any more reason to take a bullish stance, the latest sentiment data from the AAII showed that once again less than a quarter of respondents reported as bullish.  This week’s reading was actually slightly higher rising 0.2 percentage points to 24.7%, a reading in the middle of this year’s range.

Although bullish sentiment was higher, bearish sentiment rose by more with the reading going from 40.4% to 41.8%.  That is the highest level since November 10th.  While bearish sentiment has remained in a relatively tight range just above 40% for the past four weeks, current readings are more muted than what had been observed throughout most of the past year when there have been plenty of readings above 50%.

Overall, sentiment continues to heavily favor bears with a 17.1 percentage point spread between bulls and bears.  That extends the record streak of negative readings to 36 weeks.

While the AAII survey was overall little changed, other sentiment readings were a bit mixed.  The NAAIM Exposure index dropped to the lowest reading in a month. Conversely, the Investors Intelligence survey saw bulls surge to the highest level since late August combined with the lowest reading in the percentage of respondents expecting a correction since June. Aggregating all of these readings points to sentiment taking a bit more pessimistic of a stance this week than what has been observed over the past month. Click here to learn more about Bespoke’s premium stock market research service.

At first glance, recent data on jobless claims have not painted a pretty picture of the labor market.  For seasonally adjusted initial claims, things have not soured too dramatically although recent readings remain well off the lows from earlier this year. In the latest week’s data, claims rose another 4K to 230K compared to last week’s upward revision of 226K.  Given the moves in claims have been somewhat choppy over the past couple of months, the four week moving average has also risen to 230K, the highest reading since the first week of September.  In other words, claims are still below summer highs but modestly trending back up to those levels.

On a non-seasonally adjusted basis, the move in the latest week’s reading is right in line with what could have been expected given seasonality.  Jobless claims have historically risen over 80% of the time for the current week of the year with an average increase of 85K week over week.  The 87K increase this week was right in line with that average and brings the indicator up to similar levels as the comparable weeks of 2017 through 2021 (excluding 2020).

Continuing claims have been the much more worrisome side of jobless claims recently. The seasonally adjusted reading has rocketed higher over the past several weeks, rising to a new high of 1.671 million this week.  That is the most elevated reading since the first week of February.  Whereas continuing claims had spent a long time below the pre-pandemic range, this latest reading is right back into that range.  As we have noted in the past couple of weeks as well (see here and here), the rapid uptick in seasonally-adjusted claims has been consistent with the rise in claims during past recessions, meaning that even if claims are well below where they have been in the past, the speed and direction they have headed are worth keeping an eye on.

While continuing claims are flashing recessionary warning signs after seasonal adjustment, with the latest week’s data (the last week of November) covering a holiday, there are always some difficulties with the seasonal adjustment. On a non-seasonally adjusted basis, claims are still lower than comparable weeks of the year over the past 20 years (top chart below) as claims experience their typical swing higher for this point of the year. As shown in the second chart below, the current week of the year has historically experienced a large uptick. In fact, the average w/w increase for the current week has been 328K, roughly in line with the 300.9K rise in the latest data.  Similarly, the total increase off the early October low (+363.5K) has likewise been smaller than the historical median of 538K.

In spite of the tendency of the large swing higher week over week historically, seasonal factoring was not quite as pronounced. As shown below, the seasonal factor was much weaker for the latest week’s data than say the prior few weeks.  That is not to say the seasonal adjustment is necessarily wrong or worries of recession as a result of recent moves in the adjusted number are not without merit, rather it is worth noting that the seasonally adjusted number could be sending the message of a more elevated reading on claims than in actuality. In other words, it is not perfectly clear how much of the increase in continuing claims has been the result of seasonality or the beginnings of recession. Click here to learn more about Bespoke’s premium stock market research service.

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Bespoke believes all information contained in this report to be accurate, but we do not guarantee its accuracy.  Bespoke’s Charts of the Week is for educational purposes only.  None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities.  As always, past performance is no guarantee of future results.

Banking stocks had been outperforming the broader market throughout most of the fall, but that reversed in a big way in November and even more so this month.  The largest stock in the S&P 500 Banking Industry, JPMorgan Chase (JPM), however has been a notable outperformer.  As shown below, relative to other S&P 500 banks, JPM has seen its relative strength rip higher.

Although it has reverted lower more recently after trading well above its 50-DMA, the stock has experienced a notable moving average crossover as its 50-DMA has risen above the 200-DMA.  That is the first time the 50-day has been higher than the 200-day since the start of the year. From a technical perspective, these types of patterns are considered positive, especially when both are rising (golden cross).

In spite of that bullish reputation, the actual performance following past moving average crossovers where the 50-DMA trades above the 200-DMA is not particularly noteworthy nor should it generate a massive amount of optimism.  As shown below, on an average basis, JPM has fallen one week and one month after past occurrences that have happened without another instance in the prior three months.  That compares to gains of 0.25% and 1.05%, respectively, for all other periods. Looking further out, average performance has only been notably better than normal three months later albeit that is paired with less consistency to the upside. In other words, moving average crossovers to the upside are not necessarily the positive technical pattern many chart watchers consider them to be.  As always, past performance is no guarantee of future results. Click here to learn more about Bespoke’s premium stock market research service.