As we noted in today’s Morning Lineup, international equites were generally lower yesterday while US markets were shuttered in observance of President’s Day.  The US is continuing the negative tone today with the S&P 500 down roughly 50 bps as of this writing. Of course, seasonality is never the sole reason for ups and downs of the market, but we would note that today’s weakness is basically par for the course coming back from Monday’s holiday.  In the charts below, we show the average daily change and percentage of time with a move higher for the S&P 500 during the week of Presidents’ Day since 1970 when the stock market began to observe the holiday on the third Monday of February.

As shown, historically the S&P 500 has averaged an 18 bps decline the first day back from President’s Day with positive performance less than half the time. Furthermore, assuming the declines hold through the close, today would mark the fifth year in a row that the S&P 500 fell on the Tuesday after President’s Day.  Wednesdays and Thursdays of the week of Presidents’ Day have historically seen even more consistently negative price action albeit the average declines are much smaller at 2 bps and 3 bps, respectively.  Finally, Friday tends to see a rebound with an average gain of 17 bps and positive performance 57% of the time.

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!

On This Day in History:

Millennial and Gen Z wealth has grown by 80% in recent years, according to the NY Fed. They’re still $94 trillion behind boomers (Yahoo Finance)
According to Fed analysis, the stock market’s expansion over the last five years has largely benefited younger generations, with Americans under 40 experiencing an 80% growth in inflation-adjusted wealth between Q1 2019 and Q3 2023, outpacing the wealth increases of older generations. When the pandemic hit, some younger people invested or saved their stimulus checks. Also, younger people invest more in equities than older people given their longer time horizons. That may sound great for the young, but as it is widely known, younger Americans still possess considerably less wealth compared to their older counterparts. [Link]

Passive funds have overtaken active. What’s next for the long-running trend? (MarketWatch)
Buy-and-hold strategies through index funds like the S&P 500 have overtaken active investing in terms of AUM. AUM by active funds has declined from 80% in 2009 to 47% in part because of lower fees of passive funds and underperformance of active funds. This trend in favor of passive funds could make a turn though, as an increase in individual stock buying is being driven by new investors and a rallying market that favors individual stocks. [Link]

He Spent Millions Collecting the Rarest Sneakers and Cars on Earth. Now He’s Over it. (WSJ)
Miles Nadal, a Canadian financier, became a notable figure in the sneaker collecting world, or a “sneakerhead,” five years ago when he purchased 99 rare sneakers for $850,000, and shortly after, a 1972 Nike prototype for $437,500! Nadal later displayed them in a Canadian museum alongside his car collection. Now Nadal is auctioning off the bulk of his sneaker collection, around 750 pairs, including rare Air Jordans and sneakers signed by famous athletes, with the collection estimated to exceed $2 million in value. The proceeds from the sneaker sale are committed to the Dare to Dream Foundation, reflecting Nadal’s shift from collecting to contributing to charitable causes, although he does plan to retain a few sneakers and about twenty cars for personal use. [Link]

AI & Technology

Tech Bros Are Returning Their Vision Pros and Keeping Receipts (Gizmodo)
Following its highly anticipated debut, dissatisfied customers are returning their Apple Vision Pro headsets as the 14-day return period ends, expressing their disappointment on platforms like X. Users have criticized the Vision Pro for its high price, discomfort during use, and a lack of compelling applications. While the device showcased impressive technology, its practical value and current application ecosystem have not met users’ expectations. Hopefully, for Apple, early skepticism will subside as future improvements are made. [Link]

How much electricity does AI consume? (The Verge)
Well, it seems like AI is just about everywhere these days, in some form or another. You can almost always count on it having a section in these Brunch Reads every Sunday. Running AI consumes a lot of energy, but a lack of data makes it difficult to know just how much. It’s estimated that ChatGPT-3 uses enough energy to supply 130 US homes annually. AI systems may become more energy-efficient, but trends toward larger models also suggest increasing energy demands. At any rate, it’s tough to know how much energy is needed to run AI, but it’s likely a bigger number than we can estimate right now. [Link]

Crime

How I Got Scammed Out of $50,000 (The Cut)
In a sophisticated scam, a woman was coerced into handing over $50,000 from her savings under the guise of protecting her identity and family from legal and financial jeopardy. The scammers, who convincingly posed as representatives from Amazon, the FTC, and the CIA, manipulated her with detailed personal information and threats of surveillance and legal action. Schemes as elaborate as this highlight how vulnerable anybody is, regardless of age or education. Reading a story like this makes some scam artists’ expertise in altering victims’ reality a little more real for all of us. [Link]

Environment

‘Holy grail of shark science’ caught by drone off California coast (SFGATE)
A drone captured a small, possibly newborn great white shark off the coast of Carpinteria, near Santa Barbara. The drone seems to have gotten footage of the shark shedding its embryonic layer, a phenomenon potentially never before seen on camera. Much is unknown about great whites as they travel at lengths and depths, but drone capabilities may prove to be of great use in finding out more about their behavior, especially near populated coastlines. [Link]

A New Carbon Removal Startup Is Powered by Sunlight and Seawater (Bloomberg)
Banyu Carbon, a Seattle startup, is developing a method to extract carbon dioxide from the atmosphere using sunlight and seawater. This approach, based on a synthetic molecule that becomes acidic when exposed to light, aims to convert CO2 in seawater into a gas for safe storage, with potential for large-scale application including a commercial project to remove 360 metric tons of CO2 by 2026. The technology represents an energy-efficient solution to global warming, with important implications for carbon removal efforts and marine ecosystems. [Link]

Baby Bust

How China Miscalculated Its Way to a Baby Bust (WSJ)
Birth rates are falling faster than expected in China, which is a real cause for concern stemming from the one-child policy that was originally designed to control population growth. What the model didn’t account for was the aging population and reduced fertility rates of the nation today. Efforts to reverse the trend, including shifting to a two-child policy and promoting a “birth-friendly culture,” have yet to yield the desired increase in birth rates. Fertility rates of around one birth per woman are still far from the replacement rate of 2.1. [Link]

NIL

Caitlin Clark Has Scored 3,569 Points—And Taken $0 From Boosters (WSJ)
Women’s college basketball phenom Caitlin Clark now holds the all-time NCAA points record, which most knew was just a matter of time. As a high-profile college athlete in today’s world where players can make money on their name, image, and likeness (NIL), you’d assume that Clark is doing quite well. Except for that, she hasn’t taken any money from Iowa’s main NIL collective. It’s not that she can’t be paid, rather Clark prefers to focus on her substantial direct sponsorships with major brands. As a figure who has exponentially boosted the image of not only her team but women’s basketball as a whole, eyes are on Clark’s future decision to stay at Iowa for another year or enter the WBNA draft. [Link]

Buy Now, Pay Later

How and Why Do Consumers Use “Buy Now, Pay Later”? (Liberty Street Economics)
Buy now, pay later (BNPL) service usage differs depending on financial stability, primarily. Financially fragile households are more likely to use BNPL for frequent, small purchases due to limited access to other forms of credit. In contrast, financially stable households engage with BNPL services less often, primarily to avoid interest on larger purchases. Both groups have high rates of repeat usage, but the service is more critical for the financially fragile as it allows them to make purchases that might be unaffordable. [Link]

Read Bespoke’s most actionable market research by joining Bespoke Premium today!  Get started here.

Have a great weekend!

Below is an updated look at our popular table that highlights the performance of various asset classes using key ETFs (or ETPs) traded on US exchanges.  For each asset class, we show its performance since COVID hit on 2/19/20, since the current bull market began on 10/12/22, and since the low last quarter on 10/27/23.

Since October 27th (less than four months ago), the S&P 500 ETF (SPY) is now up 22.8%.  That’s a big move.  The Tech-heavy Nasdaq 100 (QQQ) is up even more at 25.95%, and interestingly, the small-cap Russell 2,000 (IWM) is up nearly the same amount at 25.58%.

At the sector level, we’ve seen Technology (XLK) and Financials (XLF) gain the most since 10/27/23, while Energy (XLE) is up the least at just over 2.7%.

Outside the US, we’ve seen China (ASHR) actually fall 2.3% since 10/27, while Israel (EIS) is up 38%.  Natural gas (UNG) is by far the worst performer in our table with a drop of 47%.

Looking at fixed income ETFs, the 20+ Year Treasury ETF (TLT) is up 11.3% since 10/27/23, but it’s still down 30.37% on a total return basis since COVID hit in February 2020.

Below is a quick six-month chart of SPY so you can see the sharp move higher seen since 10/27:

Within the large-cap Russell 1,000, we’ve seen 12 stocks gain more than $100 billion in market cap since 10/27/23, including a $794 billion gain for NVIDIA (NVDA).

In terms of percentage gainers, below are the 20 best performing Russell 1,000 stocks since 10/27/23.  Coinbase (COIN), Affirm (AFRM), and Coherent (COHR) are the three stocks up more than 100%, while Lyft (LYFT), SentinelOne (S), Karuna (KRTX), Uber (UBER), and Crowdstrike (CRWD) are all up more than 90%.

Not everything is up, though.  Below are the 20 worst performing Russell 1,000 names since 10/27/23.  SSR Mining (SSRM) has been the worst with a decline of 65.2%, followed by agilon health (AGL) with a drop of 60.2%.  New York Community Bancorp (NYCB) is down 46.6%, while AMC Entertainment (AMC) is down a hair less at 46.34%.

The huge rally we’ve seen in some areas of the market has left a large number of stocks trading above their consensus analyst price target.  As of today, nearly 16% of Russell 1,000 stocks were trading above their consensus analyst price target, and below are the ones the farthest above.

Coinbase (COIN) has been the best performing stock in the Russell 1,000 since 10/27, and it’s also now the farthest above where analysts think it should be trading.  GameStop (GME) ranks second at 36.76% above its average analyst price target.

One last table…

Below is a list of stocks that have done well since 10/27 (up 20%+) but remain well below (20%+) their consensus analyst price target.  These are names that have been rallying but analysts think there’s more gas in the tank.

With the S&P 500 pulling back in the past week, sentiment has likewise taken a less optimistic tone.  This week’s AAII sentiment survey showed 42.2% of respondents report as bullish compared to 49% one week ago.  Although that is lower, the bullish reading is still well above the historical average of 37.6% and is only at its lowest level since the end of January.

While sentiment currently holds a bullish bias, things are not exactly extreme. For example, back in December more than half of respondents reported as bullish and the current level of bulls only ranks in the 69th percentile of all weeks on record. What is perhaps more impressive is how consistently sentiment has stood at bullish levels.  As shown below, over the past four months 87.5% of weeks have seen bullish sentiment come in above 40%.  Such consistency of this level of bullishness has not been observed since April and May of 2021.  Prior to that, you’d have to go back to January 2015 to find as elevated of a reading.

Meanwhile, bearish sentiment ticked up from 22.6% last week to 26.8% this week. That is the highest reading in a month, but inverse to bullish sentiment, it remains well below the historical average of 31%.

Given there has been consistent readings of bulls above 40%, there is also an impressive streak for bearish sentiment. This week marked the fifteenth consecutive time that bearish sentiment has come in below 30%.  That is currently the longest streak since July 2021, and prior to that, there have only been a handful of other streaks that have lasted as long.  There was another 15 week long streak that ended in January 2014 but you’d have to travel back another decade to find the next streak of similar length.

The price of bitcoin took out its early January high and topped $52,000 for the first time since December 2021 today.  Bitcoin’s price traded at a short-term peak in early January just as the ETPs tracking the largest cryptocurrency started trading. From that high on January 11th, prices pulled back over 21% in less than two weeks which, even for bitcoin, is a steep decline in such a short period.

As bitcoin pulled back from that early January high, it looked as though its price would follow a similar path to the one it tracked following other approval milestones.  In December 2017, after bitcoin futures launched, prices almost immediately peaked and plunged more than 80%.  Then again in October 2021, when the bitcoin futures ETF first launched, prices peaked shortly after once again, resulting in what was ultimately another decline of close to 80%.

As we noted a couple of weeks back, the one difference between the launch of the bitcoin ETPs in January and the other two periods was that while bitcoin’s price was at or right near record highs at each of those prior two points, it was still down over 30% from its all-time high this time around.  While “investors” may have been enthusiastic ahead of the launch, the level of excitement was not nearly as strong as it was in late 2017 and late 2021. Even after today’s run to multi-year highs, bitcoin is still more than 25% below its all-time high.

In an earlier post, we discussed the latest findings per the NFIB’s Small Business Economic Trends report.  The report also surveys firms on what they consider to be their most pressing issues. In January, there were some minor shifts in these readings. Overall, cost or quality of labor (combined) accounts for the largest share of small business problems at 31% of firms.  That is followed by government-related concerns like taxes or red tape. Again combined, those issues account for just under a quarter of responses.

Inflation also ranks highly among small businesses, but this reading has improved markedly since peaking at 37% in July 2022.  Counter to the hot CPI print today, there was a 3 percentage point drop in January in the share of businesses saying inflation is their biggest problem.  Of course, that remains at a historically elevated level, matching the 2008 peak.

Stealing from the share of businesses reporting inflation as the biggest problem, poor sales ticked up a percentage point.  While not a particularly large or concerning increase (current levels still only rank in the bottom 6% of all months on record), it does bring the reading to the most elevated reading since the summer of 2021.

As we noted in the earlier post, of those businesses saying now is not a good time to expand, the share pointing the finger at interest rates as the main reason has fallen dramatically in the past couple of months. That being said, those saying interest rates are their most important problem hasn’t budged.  5% of businesses reported this issue to be their biggest, unchanged versus December at the highest level in over a decade.

The NFIB published its latest Small Business Economic Trends report covering sentiment among small businesses this morning. As discussed in the Morning Lineup, at the headline level the report came in weaker than expected with optimism dropping to 89.9 versus expectations of an increase to 92.3.  That leaves sentiment at the lowest level since last May.

Under the hood, that weaker sentiment number was a result of overall bad breadth including a couple of sizeable moves.  The single largest move in January was the drop in expected real sales. That index went from a reading of -4 down 12 points to -16.  That month-over-month decline is the largest since June 2022 and ranks as the ninth largest in the history of the survey.  Actual earnings changes also marked a significant decline falling 5 points month over month. Conversely, two indices rose month over month: inventories and plans to increase inventories.

As previously mentioned, sales metrics were notably weak with sales expectations dropping significantly.  Actual sales changes (which is not a component of the optimism index whereas sales expectations are) are still in contraction and in the bottom decile of all periods on record, but the January reading was unchanged month over month.   That clashes with actual earnings changes which fell to -30 which is down at the low end of the past several years’ range. Ironically, that worsening of earnings comes despite firms reporting an easing in inflation.  The higher prices index fell 3 points to 22. That is now out of the top decile of readings and at the lowest level in three years.

Prices are not the only area hitting a new local low.  Hiring plans have continued to collapse with back-to-back declines over the past two months.  That index is now at the lowest level since May 2020. While that reading marks a deterioration in labor conditions versus earlier in the post-pandemic period, we would note that current levels are still above the historical median. Additionally, actual employment changes came in at zero meaning firms on a net basis neither hired nor fired.  Meanwhile, compensation has appeared to have bottomed for the time being. Compensation plans, on the other hand, have peaked, but are still elevated indicating.  Finally, we would note that the percentage of respondents reporting openings as hard to fill is down to a three-year low.

Overall, the report was a bit of a mixed bag if not leaning slightly negative.  The share of respondents reporting now as a good time to expand reflects this with a reading that is still historically low albeit unchanged at multi-month highs in January.  Digging deeper, economic conditions are overwhelmingly the main culprit for this expansion outlook.  The political climate is the next largest factor, although we would note that the NFIB survey has historically tended to be sensitive to politics and leans Republicans (historically during Republican administrations the expansion outlook is better than when Democrats are in power). Financials and interest rates also rank highly for those reporting a negative outlook. Granted, at 7% of responses, that is down significantly from 12% only two months ago.

We get it. Today’s CPI was exactly what the market wasn’t looking for. On all accounts, inflation came in higher than expected. That put the nail in the coffin on a March cut and even took the chances of a May cut down to nothing much better than a coinflip. While disappointing, the trend for both headline and core CPI continues to move in the right direction. Headline CPI came in at 3.1% year/year which is only just slightly above its post-COVID low of 3.0% from last June.  Core CPI, meanwhile, fell to a new post-COVID low – technically speaking.  The reason we say technically is that while the reported reading of Core CPI was 3.9% y/y and unchanged from December, if stretched out to two decimal places, it fell from 3.91% down to 3.87%.

It may not have been much, but January’s decline in Core CPI extended the streak of monthly declines in the core y/y reading to ten months. Going back to 1960, there has only been one other period where core CPI experienced as long of a streak of monthly declines in its y/y reading. Back in 1975, the y/y reading fell from 11.86% down to 6.73% from February through December. That was a much larger magnitude of decline, but the current period started from a much lower base (5.56%). In the entire history of the series, there have only been five other periods when y/y core CPI declined for eight months in a row. As shown in the chart, most of them occurred very early on in an expansion. That makes sense when you think about it as prices shouldn’t be going down as the economy is strengthening.  It’s also why the Fed finds itself in such a difficult position caught between trying to keep a lid on inflation while at the same time avoiding an economic slowdown.