After falling every day since June 14th, the average price of a gallon of gasoline in the United States, according to AAA, rose yesterday.  That ends what was the second-longest streak of consecutive declines going back to at least 2005. Had the streak lasted another three weeks, it would have gone down as the longest on record, exceeding the 117 days from back in 2015, but it’s ironic that this streak began back in mid-June when the Federal Reserve started to panic about inflation and leaked plans to hike rates by 75 bps at its June meeting to the WSJ and is now ending on a day when the Fed is expected to hike rates by at least 75 bps for an unprecedented third straight meeting.

While the streak is over, it still doesn’t diminish the fact that prices at the pump have been in freefall since that peak in June, falling by 27%.  Prices at the pump are down close to 4% in September alone.  While the national average price has only been higher at this time of year two other times (2008 and 2012), the 3.9% decline this month is larger than average.  Even more surprising is the fact that with prices at the pump up 12% YTD, they are actually up less YTD than average for this time of year.  There’s no dismissing that inflation continues to be a major problem, but most people probably wouldn’t believe that gas prices are up less this year through 9/20 than they are in the average year.  Click here to learn more about Bespoke’s premium stock market research service.

For those checking in on our Seasonality Tool in the past week, the current point of the year can either look like one of the worst, middling, or best times of the year depending on the time frame.  As shown below, the median one-week performance of the S&P 500 from the close on 9/20 over the last ten years has been a decline of 95 bps loss which ranks in just the fourth percentile of all days of the year.  Extending out to look at the S&P 500’s median one-month performance, the 105 bps median gain is about smack dab in the middle of the range of historical one-month returns. Moving out to three months, the S&P 500’s median gain of 578 bps ranks in the top 5% of all days.

To look at seasonality in another way, the charts below show the average S&P 500 5-day performance (including a smoothed look via a 7-day moving average) and the percentage of time the index has traded positively at each calendar day of the year going all the way back to 1945. The current week of the year has averaged some of the worst one-week returns for the S&P 500 across all years of the post-WWII period while the index has tended to fall more often than not.

Again, contrary to short-term seasonal weakness, taking a similar look but using a 3-month performance window, we are entering one of the best times of the year.  As shown below, the second half of September into October sees the average 3-month performance rocket higher and by early October has tended to be the strongest of any point of the year. Click here to learn more about Bespoke’s premium stock market research service.

Relative to expectations, Tuesday’s report on Building Permits and Housing Starts was mixed, but overall, it was pretty lousy.  Housing Starts exceeded expectations by over 100K, but Building Permits missed expectations by nearly 100K, and as shown in the table below, both are currently down on a year/year basis.  Within the better-than-expected Housing Starts report, practically all of the strength was in multi-family units which increased 28% m/m.  Single-family units were also positive but increased at just a fraction of the rate of multi-family units.  Building Permits were a more gloomy part of the report with the headline reading down 10% m/m and 14.4% y/y.  On a regional basis, Permits were down across the board with weakness concentrated in the Northeast and South.

As we have highlighted frequently over the years, Housing Starts have been an excellent leading indicator of the economic cycle. With the exception of the COVID crash, every other recession since the mid-1960s was preceded by a rollover in the 12-month average of Housing Starts (even ahead of COVID, Housing Starts technically rolled over from a peak, but nothing of the magnitude like they did ahead of prior recessions).  The current magnitude of decline from the recent peak is by no means near the severity of rollovers leading up to prior recessions, but there has been a clear trend of weakness in this reading with four straight months of declines in the 12-month moving average.

Looking more closely at the post-financial crisis trends in Housing Starts and Building Permits, both appear to have reached at least a short-term peak.  Building Permits had been holding up in the months leading up to August’s report, but with a current reading of 1.517 million replacing a reading of 1.772 million from 12 months ago, the one-year average took a sharp turn lower. In fact, the last time it dropped as much as it did this month was back in mid-2009.

Finally, with the release of each month’s Housing Starts report, a phrase you increasingly hear is something along the lines of “but all the strength was in multi-family units”. As noted above, that was the case again this month and so much so that multi-family starts accounted for over 40% of all starts.  Relative to recent history, that’s a very high percentage, and outside of one month in June 2015 when the reading was distorted due to the expiration of a tax break for multi-family units in New York, it’s the highest reading since 1985. Given their smaller size, multi-family units aren’t considered to be nearly as economically impactful as single-family units and therefore suggests that the strength of the August report wasn’t as much as it looked at the surface.  Click here to learn more about Bespoke’s premium stock market research service.

With President Biden declaring that “the pandemic is over” on 60 Minutes last night, we thought we’d take a look at stock market performance since the pandemic began.  At its peak on January 3rd, 2022, the S&P 500 was up more than 40% from its closing price on February 19th, 2020 — the peak reading for the index prior to the COVID Crash.  After entering bear market territory in 2022, the S&P is currently only 14% above its pre-COVID high.  In the Russell 1,000 — another large-cap index — 41% of stocks are now trading below their closing price on February 19th, 2020.  20% of stocks in the index are down more than 20%!  Given that two and a half years have passed, we think it’s safe to say that any stock down 20% from pre-COVID levels has been a “pandemic loser.”  At least at this point in time.

Below are stocks with market caps above $15 billion that are down at least 20% from their closing price on 2/19/20.  Names like Boeing (BA), Delta (DAL), Uber (UBER), and Las Vegas Sands (LVS) were some of the initial “lockdown losers” that never really recovered, but other stocks that were initially viewed as “lockdown winners” are also on the list like Netflix (NFLX), Meta (META), Spotify (SPOT), and Zoom Video (ZM).  Go figure.

Boeing (BA) and Intel (INTC) have been two of the biggest losers since pre-COVID with declines of more than 56%.  Other “blue chips” that have been crushed since the pandemic hit include Biogen (BIIB), Citigroup (C), General Electric (GE), Verizon (VZ), 3M (MMM), Square (SQ), Disney (DIS), Adobe (ADBE), and salesforce (CRM).  It’s interesting that there’s representation from nearly every sector of the economy on this list.  The only sector that’s NOT included is Energy, which is crazy since the sector was one of the hardest hit in the early days of COVID as the price of oil even went negative for a day.

Of course, COVID isn’t the reason why all of these large-cap stocks are now down so much since the pandemic began, but the performance numbers are the performance numbers, and there’s no getting around it.  Management at big travel & leisure companies have always wished COVID never happened, but more and more companies in sectors like Tech that thought the pandemic might be a game-changer for them in a positive way are now staring at big 2+ year declines thinking “what the hell just happened.”  Click here to learn more about Bespoke’s premium stock market research service.

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.

While you’re here, join Bespoke Premium with a 30-day trial!

Wealth

U.S. household wealth suffers record drop in second quarter by Dan Burns (NASDAQ/Reuters)

Rising interest rates and falling asset prices are unwinding many of the huge wealth gains from the pandemic period when soaring prices sent US net worth above $150trn. [Link]

Gulf States, Rich From Oil, Spread Influence With Financial Lifelines by Chelsey Dulaney and Rory Jones (WSJ)

Oil-rich economies are seeing a massive inflow of cash amidst high energy prices. Some are using that cash to support other countries that are reeling under balance of payments stress and natural disaster crises. [Link; paywall]

Electric Vehicles

Tesla Shifts Battery Strategy as It Seeks U.S. Tax Credits by Rebecca Elliott and Mike Colias (WSJ)

The passage of the Inflation Reduction Act earlier this year is already driving companies to re-think their approach to offshoring and supply chain design as the world’s largest EV maker may be switching battery production from Germany to the US. [Link; paywall]

Ford Reveals New EV-Selling Rules to Dealers by Nora Eckert (WSJ)

The Big Blue Oval is rolling out a new approach to selling EVs which will require no-haggle prices. New infrastructure for charging will also be a must. [Link; paywall]

Surgical Science

I Wish I Was a Little Bit Taller by Chris Gayomali (GQ)

Men who want to be a little bit taller are undertaking a dangerous surgery designed to lengthen their legs and add a few inches via broken femurs, titanium rods, and a lot of pain. [Link]

An ACL Tear That Heals Itself? by Aylin Woodward (WSJ)

Imagine your body re-growing its own ACL? A new generation of biologic treatments that create a scaffold for the ligament to grow on is being used to replace the injured tissue. [Link; paywall]

Scarcity & Abundance

Low-Paid Workers Face Worst-Ever Financial Crisis, Study Finds by Alan Jones (Press Association/Bloomberg)

The Living Wage Foundation surveyed low-wage workers and discovered more than half have used a food bank over the past year with almost as many regularly skipping meals. [Link; soft paywall]

From Shortage to Glut: Scotts Miracle-Gro Is Buried in Fertilizer by Thomas Gryta (WSJ)

The huge boom in consumer demand during the pandemic convinced goods producers and importers to ramp up their inventories. Now, that demand isn’t appearing to the same degree that was expected, a glut of inventories and over-production remains. [Link; soft paywall]

Global Food Supply Faces Fresh Turmoil With Rice Set to Climb by Patpicha Tanakasempipat, Pratik Parija, and Mai Ngoc Chau (Bloomberg)

Export controls in India are expected to drive up the price of rice globally. Global production has already been curtailed by weather and the shock of other crop prices soaring earlier this year. [Link; soft paywall]

Ukraine

Ukraine Pulled Off a Masterstroke by Phillips Payson O’Brien (The Atlantic)

The offensive that let Ukraine retake large swathes of Kharkiv Oblast in a dramatic breakout was part of a broader strategic feint which has played out over the entire summer. [Link; soft paywall]

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Have a great weekend!

If you’ve been in a particularly bad mood heading into weekends this year, you’re obviously paying pretty close attention to the markets.  With today’s decline, the S&P 500 is in the familiar position of ending the week with a decline of 1% or more.  If the current declines hold up into the close, it will be the 12th daily drop of 1% or more to end a week this year.  Going back to 1952 when the five trading day week started, there have only been five other years (1974, 2000, 2001, 2002, and 2008) where there were as many or more down 1% Fridays (or last trading day of the week) in a given year.  As you might expect, all five of those years were lousy for the stock market.

While this year is currently tied for having the fourth-highest number of 1%+ down days, the year isn’t even three-quarters done (heaven help us).  After today there are still another 15 weeks left in the year, so there is plenty of time to move up the rankings.  On a percentage basis, the S&P 500 has closed down at least 1% on the last trading day of the week just under a third (32.4%) of the time, and if that pace were to keep up for the remainder of the year, 2022 would easily set the record for the highest frequency of 1% declines to close out the week.  Never have we needed a happy hour more than this year. Click here to learn more about Bespoke’s premium stock market research service.

Earlier this week, a hotter-than-expected CPI print countered the belief that inflation has peaked.  Even with that CPI report, though, there have been a number of other indicators pointing to the opposite.  For example, readings on prices from various PMIs have rolled over and PPI decelerated dramatically.  Some other evidence can be found in Google searches.  Google Trends provides tracking of search interest for a provided search term. Lower readings indicate fewer Google searches for a provided term whereas higher readings indicate elevated search interest with these series indexed to their peak reading. In the charts below, we have adjusted these series for seasonality and re-indexed them so that like the raw data, peak readings are indexed to 100.

Searches for “inflation” surged during the pandemic and reached a record high in August.  So far in September, that reading remains extremely elevated but it has pulled back significantly.  The month isn’t over yet, so time will tell if searches for inflation have in actuality reversed to that degree, but the peaks for related terms have moved even further in the rearview.  For example, searches for “costs”, “high costs”, and “expensive” all surged in the first half of the year reaching a high in the spring.  Since then, these readings have been on the decline, although, searches for “expensive” and “high costs” remain well above levels observed in years prior.

Taking a more granular look at specific consumer expenses shows a bit more nuanced picture.  Rent has been one of, if not the, biggest single driver for CPI recently as we noted in our recap of the latest CPI release. Search interest appears to back that up as searches for the term “rent cost” have exploded higher. Even though it remains well above readings from any other period since the data begins in 2004, that reading has rolled over in the past few months. As for other housing costs, searches for “Utilities Bill” and “Electric Bill” are at and nearing record highs, respectively, after rising sharply in the past year.  Those higher readings are understandable as energy prices have skyrocketed, but gasoline prices are much lower than they were at the start of the summer and search interest has reflected that.  Regardless, higher gas prices makes driving less attractive. In turn, searches for “car pool” are much higher than they were at other times in the pandemic years.

Grocery and food-related searches have also spiked in recent months indicating people are looking into why they are paying more when they head to the store. Again though, similar to rent, these readings have in fact started to roll over in the past few months.

There is only so much the average consumer can do to fight inflation, and the Google Trends data provides some insight into what people are doing to cope with higher costs.  For starters, searches for Electronic Benefits Transfer, or EBT, exploded at the start of the pandemic and have remained extremely elevated relative to pre-pandemic levels.  Current search interest levels are below the highs from the early days of the pandemic, but they have also begun to rise toward the upper end of the range over the past several months.  Meanwhile, searches for “loan” have seen a structural move higher since the pandemic began as well with a particularly sharp increase in recent months.

Searches for “budgeting” used to be much higher in the first decade of the 2000s but as technology increasingly engrained itself into society, those searches appeared to have been replaced by searches for “budgeting apps”. One more specific example is the popular Paypal (PYPL) owned Google Chrome extension Honey which automatically applies coupon/discount codes to online purchases. Over the past year, interest in each of these terms have risen as inflation remains elevated and consumers look for ways to tighten their belts. Click here to learn more about Bespoke’s premium stock market research service.