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:

The First Ever Text: On December 3rd, 1992, a 22-year-old engineer named Neil Papworth used his PC to text “Merry Christmas” to his colleague Richard Jarvis, who was attending a holiday party.  Papworth was part of a group within Vodafone that was developing a “Short Message Service Centre” (SMSC). Not only was Papworth early in wishing his friend Merry Christmas, but he also likely had no idea of the importance of that message. Reflecting on it years later, he said, “It didn’t feel momentous at all. For me, it was just getting my job done on the day and ensuring that our software that we’d been developing for a good year was working OK.”  When Jarvis and his colleagues at the party received the message, they were excited it worked, but they didn’t text Papworth back.  At the time, phones could only receive texts. So, instead, they used the phone and called him.  Today, it is estimated that 23 billion text messages are sent per day, and as a result, millions of comments are likely misinterpreted by their recipients. If only people still picked up the phone and called back today!

AI & Technology

Undaunted by hurricanes, COVID and quakes, Puerto Rico ready for its tech moment (MarketWatch)
Puerto Rico hasn’t had the best fortune in recent years, hit by natural disasters, a pandemic, and more. That misfortune isn’t stopping its tech movement though. The island, historically a manufacturing hub, is increasingly being recognized for tech and is attracting major companies like Amazon, Microsoft, Oracle, and Meta Platforms. With a strong engineering talent pool, bilingual workforce, and advantageous tax incentives, Puerto Rico is overcoming infrastructure issues and natural disasters to foster a resilient tech ecosystem. Puerto Rico aims to retain and attract STEM talent, capitalizing on its unique position as a US territory with strategic location benefits. [Link]

How Your Dog or Cat Could Help Speed Up Your Health Tests (WSJ)
Medical diagnostics are being revolutionized by artificial intelligence (AI), with rapid advancements initially seen in veterinary care now informing human diagnostics. Techcyte, a Salt Lake City-area startup, has developed AI algorithms using animal data, significantly speeding up test results processing. The Mayo Clinic, among others, has adopted these algorithms, enabling faster turnaround for parasite testing and working towards AI-based cancer detection. AI in diagnostics is proving more efficient and accurate, reducing human error and fatigue. [Link]

Sports Illustrated Published Articles by Fake, AI-Generated Writers (Futurism)
Sports Illustrated has been publishing content from seemingly fictional writers with AI-generated headshots and biographies. Investigations revealed that Drew Ortiz, an author on Sports Illustrated’s site, along with others, had no online presence outside of the publication and used AI-generated images for themselves. After inquiries, Sports Illustrated’s publisher, The Arena Group, removed these authors and their content, initially denying AI involvement but later admitting to licensing content from AdVon Commerce. This situation reflects a broader trend in media, where publishers like CNET, Bankrate, and BuzzFeed have faced criticism for using AI-generated content. [Link]

The Inside Story of Microsoft’s Partnership with OpenAI (The New Yorker)
Microsoft faced a crisis when OpenAI, a key collaborator, abruptly fired its co-founder and CEO, Sam Altman. This caused turmoil within OpenAI and threatened Microsoft’s strategic partnership which was integral to its AI advancements. After intense internal discussions and employee backlash at OpenAI, Altman was reinstated as CEO following significant changes to OpenAI’s board, stabilizing the partnership with Microsoft. The New Yorker gives the full behind-the-scenes details. [Link]

A Quibi-like app called ReelShort hit record downloads and revenue this month (TechCrunch)
ReelShort, a short-video app similar to Quibi, has seen significant success with 1.9 million downloads in November and substantial revenue despite criticisms of its content quality. The app, which has aggressive marketing strategies, features episodes unlocked through ads or virtual currency. Since its August 2022 launch, it has garnered 11 million downloads and $22 million in net revenue. ReelShort’s popularity suggests a continued consumer interest in short-form, produced entertainment, competing with platforms like TikTok. [Link]

Energy & Sustainability

A first-of-its-kind geothermal project is now operational (Google)
Aiming to address climate change, a company called Fervo has set a goal to operate its data centers and office campuses on 24/7 carbon-free energy (CFE) by 2030. To achieve this, Fervo is focusing on commercializing advanced clean electricity technologies, with a particular interest in enhanced geothermal energy. Google has partnered with Fervo to develop an enhanced geothermal power project, which is now operational and supplying carbon-free electricity to their data centers in Nevada. They also recently announced a partnership with Project InnerSpace to further geothermal energy adoption. Ideally, projects like this will kickstart a movement in the power sector towards clean energy. [Link]

Tesla solar panels were going to change the world. What happened? (Financial Times)
In 2016, Tesla acquired SolarCity and unveiled a future home concept with solar roof tiles, but seven years later, this aspect of Tesla’s strategy has significantly receded. The broader solar industry, including Tesla, faces challenges like high-interest rates and supply chain issues. Tesla’s solar deployments, particularly the Solar Roof product, have underperformed against targets. Despite Elon Musk’s continued optimism, Tesla’s strategy for its solar business remains unclear. [Link]

EVs

Electric vehicles and hybrids grow to a record-high 18% of U.S. light-duty vehicle sales (EIA)
In the US, 16% of all light-duty vehicle sales came from battery EVs (BEV). Hybrid and plug-in hybrid sales contributed to bringing that figure up to a 17.7% record high. Notably, the average transaction price for BEVs decreased by 5% in the third quarter to $50,283, making them more competitively priced compared to the overall industry average for light-duty vehicles. However, BEV sales are still primarily concentrated in the luxury vehicle market, comprising 34% of total luxury vehicle sales but less than 2% in the non-luxury segment. [Link]

Biden to Limit Chinese Role in U.S. EV Market (WSJ)
An EV tax credit, part of the Inflation Reduction Act, aims to decrease reliance on Chinese suppliers by restricting the credit for EVs with battery materials from “foreign entities of concern.” The Biden Administration hopes the tax credit will encourage auto-supply chain development and cut the cord from China. Automakers are awaiting clarity on these rules, which will influence their investment and licensing decisions, particularly regarding collaborations with Chinese firms. The policy could potentially disqualify many EVs from the subsidy. [Link]

Economic Developments

The Biggest Delivery Business in the U.S. Is No Longer UPS or FedEx (WSJ)
Amazon has become the largest delivery business in the US. The company is expected to further widen this gap, with projections of delivering around 5.9 billion packages by the end of the year. This growth contrasts with the earlier skepticism from industry executives and analysts about Amazon’s potential to lead in logistics. Amazon’s strategy has included regionalizing its logistics network and launching a program for entrepreneurs to start delivery franchises. While Amazon has excelled in residential delivery, it still lacks the global coverage and pick-up and delivery capabilities of UPS and FedEx. [Link]

The McDonald’s theory of why everyone thinks the economy sucks (Silver Bulletin)
A Washington Post story suggested that customer concerns about high fast-food prices are based on misinformation, but this article argues otherwise. The price of the Big Mac has indeed increased by 14% from December 2020 to June 2023, which is slightly lower than the overall consumer price index increase. However, the rise in fast-food prices is part of a larger trend of increased spending across various consumer goods. The author highlights strategies by fast-food chains, such as introducing premium items and digital ordering, that have led to customers spending more. Consequently, these spending patterns are contributing to the public’s negative perception of the economy, as people are spending more in both real and nominal terms. [Link]

Germany chokes on its own austerity medicine (Politico)
A court ruling invalidated the German government’s strategy of using “special funds” to circumvent deficit limits. This decision has left a €20 billion gap in the budget and challenges Chancellor Olaf Scholz’s strategy to finance the government’s agenda without violating the constitutional debt brake. The situation is particularly notable given Germany’s past criticism of other European countries for similar financial practices. The ruling has raised concerns about Germany’s fiscal policies and its ability to maintain its economic commitments, including defense spending following Russia’s invasion of Ukraine. [Link]

Containing Viral Disease

How one rabid kitten triggered intensive effort to contain deadly virus (Washington Post)
An adopted kitten in Omaha, Nebraska named Stanley showed signs of illness thought to be a reaction to medication. However, Stanley soon developed severe symptoms, including seizures and breathing difficulties, leading to his death the next day. Post-mortem tests revealed that Stanley had a strain of raccoon rabies previously unobserved west of the Appalachian Mountains, sparking concern about its potential spread. Its spread could make its way into several surrounding states over five years and put millions of people at risk. After Stanley’s death, hundreds of animals in a surrounding radius were caught and vaccinated in the hope of preventing the spread of rabies, but it won’t be known until next year whether the efforts were effective. [Link]

Chinese Policy

How China is tearing down Islam (Financial Times)
China is cracking down on Islamic culture, and as such, is modifying and demolishing mosques in the country. More specifically, the policy affects almost every region and removes Arabic architectural features and replaces them with traditional Chinese designs. An analysis of satellite images of 2,312 mosques shows that about three-quarters have been either modified or destroyed since 2018. These changes are part of a broader policy of “sinicisation” aimed at assimilating non-Chinese groups and religions into what the government considers Chinese culture. This has led to a sense of loss and suppression among the Muslim community, with fears that it represents the beginning of the end of Islam in China. The actions that China is taking towards Islam highlighted in the article are part of a broader trend in the country where religions are forced to prioritize Chinese traditions and loyalty towards the state above all else. [Link]

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The average stock in the large-cap Russell 1,000 rose 9.77% in November, and 38 stocks gained more than 30%, 14 rallied more than 40%, and seven surged more than 50%.

Below are the 30 stocks that rose the most in November.  For each name, we also include its market cap, its year-to-date total return, its distance from its 52-week high, and short interest as a percentage of float.  As shown, buy-now-pay-later company Affirm (AFRM) was up the most in November with a huge gain of 95.4%, followed by streaming company Roku (ROKU), crypto-trading platform Coinbase (COIN), and digital payments company Block (SQ).  Are we back in late 2020/early 2021??

Other notables on the list of big winners include Gap (GPS) with a gain of 56.8%, Expedia (EXPE) at 42.9%, Generac (GNRC) at 39.25%, and Palantir (PLTR) at 35.47%.

Below we’ve expanded the universe to show the top-performing stocks in the Russell 3,000 in November.  The Russell 3,000 includes all the stocks in the large-cap Russell 1,000 and small-cap Russell 2,000.

Four stocks in the Russell 3,000 rallied more than 100% in November: Rocky Brands (RCKY), Bluegreen Vacations (BVH), Sight Sciences (SGHT), and TransMedics (TMDX).  Rocky Brands is a $210 million market cap retailer that sells heavy-duty boots and other apparel.  Bluegreen Vacations is a timeshare company.  Sight Sciences creates medical devices and procedures for the eyes.  And finally, TransMedics makes unique medical devices built to care for organs during the transplant process.

Before we go, below is a look at the stocks that have gained the most in market cap in 2023.  Amazingly, twelve stocks have gained more than $100 billion in market cap this year, six have gained more than $500 billion, and one — Microsoft (MSFT) — has gained more than $1 trillion!

Please click the image below to view our December 2023 market calendar.  This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Click here to view Bespoke’s premium membership options.

November was a remarkable month for stocks, though equities have stalled out just below prior lows. That has not thwarted investor sentiment though.  The latest sentiment survey from the AAII showed 48.8% of investors reported as bullish, up from 45.3% last week. That is now the highest reading on bullish sentiment since the first days of August, and is more than 10 percentage points above the historical average of 37.5%.

While bullish sentiment has not yet moved above its prior highs, the share of respondents reporting as bearish has set a new low. The reading has experienced a dramatic shift having started November above 50%, and fallen all the way down to 19.6% this week. That is the lowest level of bearish sentiment since the first week of 2018!

Perhaps even more impressive is that over 30 percentage point drop in the past four weeks ranks as one of the largest declines on record.  Since the start of the survey in 1987, the current four week decline ranks as the fourth largest on record. The last occurrence was all the way back in April 2009.

As a result of the massive drop in bears, the bull-bear spread has risen to 29.2, just shy of the July high of 29.9.

The AAII survey was not alone in having seen a surge in optimism.  For example, the Investors Intelligence survey likewise is seeing the strongest bullish sentiment since early August and the NAAIM Exposure Index is at the highest level since late July.  Combining these readings into our sentiment composite shows the index is now at 0.95 indicating the average sentiment survey is now almost a full standard deviation above (meaning more bullish than) its historical average.

Initial jobless claims experienced a 22K drop last week (after a 2K upward revision this week), the largest one week decline since June 24th. Claims experienced a modest rebound in the most recent print rising back to 218K.  At that level, claims are in the middle of the past couple of year’s range which is also historically healthy relative to pre-pandemic readings.

Before seasonal adjustment, claims experienced an unusually large drop back below 200K. That is the first sub-200K print since the end of October. Additionally, it is a record low relative to the comparable week of the year throughout history. While that may sound like a positive, we’d be hesitant to begin shooting off confetti. That drop and low reading are more likely a function of the Thanksgiving holiday, and as shown below, this week’s drop is only a dent to the seasonal rise in claims that is typical for this time of year. In other words, one week does not make a trend.

While the initial claims number is likely not trending in a more positive direction, the concerning climb in continuing claims has pressed on. Seasonally adjusted continuing claims have continued their rapid rise with a week-over-week increase in nine of the last ten weeks.  That has resulted in a fresh two-year high of 1.927 million.

Now that NVIDIA (NVDA) has reported its Q3 numbers (the last of the mega-caps to report), below is an updated look at the number of times “AI” was mentioned during conference calls going back to 2021.  The revolutionary ChatGPT app was released in November 2022, and since then, we’ve seen an explosion in “AI” mentions from mega-cap management teams.  As shown below, “AI” was mentioned a total of 418 times this quarter across the conference calls of AAPL, AMZN, META, MSFT, GOOGL, and NVDA.  The big jump from last quarter’s 350 “AI” mentions was thanks to 154 mentions on NVDA’s call alone!

Apple (AAPL) remains the lone mega-cap that’s hardly discussing “AI” at all on its calls with just nine mentions this quarter.  Thus far, Apple has not jumped on the “AI” bandwagon at least when it comes to quarterly earnings conference calls.  Amazon (AMZN), on the other hand, has picked up the “AI” pace with 48 mentions this quarter.  In Q4 2022 just after ChatGPT’s release, “AI” was mentioned just once on AMZN’s eight prior quarterly calls.

Meta (META) “AI” mentions ticked up even more on its latest call to 71, while Microsoft (MSFT) mentions went the opposite direction and fell from 76 to 61 quarter over quarter.  Alphabet (GOOGL) mentions also dipped a bit but remained high at 75, ranking it second behind only NVIDIA for the most number of “AI” mentions in Q3.

The bull market for stocks this year has coincided with a pullback in inflation, but it has also been driven in large part by mega-cap Tech stocks, that, except for AAPL, are now fully on board the AI wave.  We’ve asked this question rhetorically several times this year, but once again, where would this market be without ChatGPT?