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.

Although it has pulled back as of this writing, at its highs today, Bitcoin reclaimed the $50,000 level.  That was the first time the world’s largest crypto currency has traded above that threshold (on an intraday or closing basis) since December 28, 2021.  As shown below, following the record high set in November 2021, Bitcoin cratered 76.5% over the next year.  Since its bottom in November 2022, the crypto has managed to rally 214%.  A significant portion of those gains have come since last summer with steep increases in the price of Bitcoin from October through December and another sharp push higher in the past few weeks.  In fact, as recently as January 25th, it was trading below $40,000.  But nearly three weeks and $10,000 later, Bitcoin is looking to join the 5.5% of days in which it has formerly traded above $50,000.

Are you ready for the ‘big game’?  Super Bowl LVIII kicks off from Vegas on Sunday evening, so as we do each year, we wanted to provide a quick summary of market returns from the Super Bowl through year-end based on different winners and other scenarios. Starting with winning teams, if the 49ers win on Sunday, they will join the Steelers and the Patriots as the only teams to win six Super Bowls.  Meanwhile, if the Chiefs win, they will be one of seven teams with four championships under their belts.

If you’re a bull, you must be hoping that Brock Purdy and the explosive 49ers offense come out on top. Following their five prior wins, the S&P 500 has risen an average of 20.2% from the Super Bowl through year-end with gains all five times.  For the Chiefs, average returns following their three wins were just a bit more than half the 49ers’ average (10.9%) with gains two out of three times. For the AFC vs NFC rivalry, it used to be that stock market performance was much stronger after NFC wins, and while the NFC still comes out on top, the gap has narrowed considerably.

We also looked at market returns from the Super Bowl through year-end based on several different scoring scenarios, and let’s just say that no matter who wins, let’s hope it’s a high-scoring blowout.  When the winner wins by 21 or more, the total score is 60 or more, the winner scores at least 35 35, or the loser scores more than 28, average returns under each scenario for the remainder of the year are above 10%.  Conversely, when the winner scores 21 or less or the loser scores seven or fewer points, the average returns are either negative or barely positive. See, there’s a reason the NFL likes high-scoring games.  You should too!

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:

Freedom’s Triumph: On February 11th, 1990, after spending 27 years in prison for his anti-apartheid activities, Nelson Mandela was freed. His release marked a pivotal moment in South African history, foreshadowing the end of a system of racial discrimination in the country. Mandela’s leadership and commitment to equality led to his election as South Africa’s first black president in 1994, laying the foundation for the country’s democratic transformation.

Sports

An Alabama draft pick has never scored in a Super Bowl. That won’t change this year. (AP News)
Alabama has long reigned king over the college football landscape. Besides all the national championship hardware under the recently retired Coach Nick Saban, Alabama sits atop the list of schools with the most NFL first-round draft choices with 46 since the turn of the century. That’s a lot of NFL potential from one program. We could go on and on about all the flashy stats belonging to the Crimson Tide, but arguably one of the most surprising is a not-so-impressive one. No player that ended his career at Alabama has scored a point in a Super Bowl. The streak will continue tonight too as no player on either team has a former Alabama player. [Link]

The Keys to Successful Celebrity Use in the Super Bowl (iSpot.tv)
Tonight’s big game is also a huge night for ads. Choosing the right celebrities can significantly enhance ad engagement and memorability. The ads cost millions of dollars for just seconds of screen time as it is, and the use of high-profile figures only inflates costs more. Taylor Swift has been all the rage in the NFL lately, and females, in general, have been climbing to the top as the NFL capitalizes on the opportunity to expand its fan base and reach a wider audience. If done right, a good Super Bowl ad can go a long way. [Link]

How Duncan McGuire’s move to Blackburn fell apart twice (The Athletic)
Duncan McGuire, an Orlando City striker, and US Men’s National Team member, was headed for his new home in England, ready to make his connecting flight. According to Murphy’s Law though, “anything that can go wrong will go wrong,” and that is exactly what happened to McGuire, twice. Financial issues and administrative errors sent the striker through the pinball machine and ultimately back to Orlando. On the bright side, there could be worse places to live during the winter. [Link]

AI & Technology

Sam Altman Seeks Trillions of Dollars to Reshape Business of Chips and AI (WSJ)
Sam Altman, CEO of OpenAI, aims to dramatically expand global semiconductor capacity to support AI development, requiring a projected $5 trillion to $7 trillion investment. That’s an absolutely massive figure considering the current value of chips sales. In discussions with investors, including the UAE government, this ambitious initiative seeks to address chip shortages impacting AI advancement, but the US government may push back against Abu Dhabi’s involvement. The project, if successful, could reshape the semiconductor industry and AI’s future. [Link]

What the birth of the spreadsheet can teach us about generative AI (Financial Times)
The digital spreadsheet, introduced in 1979, transformed the way financial calculations were conducted, initially confounding users with its format. VisiCalc, the pioneering software, quickly demonstrated its value by reducing the time required for financial tasks. The evolution of spreadsheets impacted labor markets, increasing the productivity and scope of accountancy work rather than diminishing job opportunities. Perhaps history can provide insights into the potential impacts of generative AI on modern workplaces, suggesting both empowerment and challenges ahead. [Link]

Secrets of ancient Herculaneum scroll deciphered by AI (NBC News)
If there wasn’t already enough that AI has had a hand in lately, add archeology to the list. Archeologists utilized AIto decipher ancient texts from papyrus scrolls buried under ash from Mount Vesuvius’ eruption in 79 AD. Found in a villa in Herculaneum, these scrolls, previously unreadable for nearly the last 2000 years due to carbonization, are revealing secrets with AI’s help. The monumental achievement is a symbol of AI’s revolutionary breakthrough in the field. [Link]

Climate Control

Could a Giant Parasol in Outer Space Help Solve the Climate Crisis? (NYT)
Some scientists want to put a giant screen between Earth and the Sun. As temperatures rise to their highest levels on record, a big sunscreen could block just 2% of solar radiation to cool the Earth by a whole 1.5 degrees Celsius. That would potentially have a huge impact on staying within manageable climate boundaries. Don’t be confused though, to block out that much radiation the shade would have to be roughly the size of Argentina and weigh 2.5 million tons! [Link]

Automobiles

The True Cost of Auto Insurance in 2024 (Bankrate)
The average cost of full coverage car insurance has risen by 26% over the past year, with variations across states and metro areas. Louisiana and Florida experience the highest insurance costs, attributed to frequent extreme weather events and associated catastrophic claims. In contrast, Massachusetts boasts the lowest insurance cost relative to income. The study also highlights the impact of factors such as driving record, vehicle type, and credit history on insurance premiums, alongside the geographical influence of population density and weather patterns on rates. [Link]

Mitchell Reports a Lower Total Loss Rate for Electric Vehicles (PR Newswire)
According to this report on vehicle collisions, many believe that EVs are written off as total losses more often than internal combustion engine (ICE) vehicles, even with minor damage. What was found though was that EVs do not have lower total loss rates compared to ICE vehicles, thereby unsupportive of that thesis. The study also found that labor for EVs constitutes a larger portion of repair costs, and repair costs for EVs are generally higher than for ICE vehicles. Repairable EV volumes have also ticked upwards. [Link]

Back to Normal?

Dartmouth Reinstates SAT Requirement in First for Ivy League (WSJ)
Dartmouth College is the first Ivy to pivot back to SAT/ACT requirements since pressing pause on the tests during the pandemic. While many schools have permanently shifted away from them, Dartmouth has said that standardized test scores predict the best student outcomes better than high-school grades. There’s certainly lots of debate around this topic, but Dartmouth says that being a test-optional college isn’t working, and the other Ivy’s may follow. [Link]

Where are we in the cycle? (TS Lombard)
The global economy has been taken for quite the ride since the pandemic, and through unfamiliar territory in many ways that has made a clear path to a “soft landing” hazy at times. While we’re on track to land softly, which was seemingly unachievable at the beginning of last year, tight monetary policy still is a storm cloud hanging over the economy. Potential policy missteps could disrupt the way forward while a multitude of other factors around the world play out. [Link]

Crime

Inside the Underground Site Where ‘Neural Networks’ Churn Out Fake IDs (404 Media)
OnlyFake, an underground website, utilizes “neural networks” to create highly realistic fake IDs for $15, a huge acceleration for the fake identity market and a bigger headache for cybersecurity. The IDs can pass verification systems and make bank fraud, money laundering, and other criminal activity much quicker and easier. As technology evolves exponentially faster these days, this is just one more area of concern for deciphering the truth. [Link]

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Have a great weekend!

Earlier this week, we updated our Consumer Pulse report, which is a monthly survey we’ve been running on 1,500 US consumers balanced to census since 2014. Among a huge array of questions we survey consumers on, one topic is smartphones. More specifically, since 2014, we have asked smartphone owners which service provider they use. As shown below, in our latest monthly survey, over 30% of respondents reported that they use T-Mobile (TMUS). That is a record high for the company and is essentially a doubling in market share from what was the norm for the company throughout the mid to late 2010s.  T-Mobile appears to be the new leader in the cell service space, eclipsing prior behemoths Verizon and AT&T.

When you look at the performance of the stocks for those same wireless telecommunication companies, it only becomes more evident the degree to which T-Mobile has left its competition in the dust.  In the chart below, we show the performance of TMUS versus Verizon (VZ) and AT&T (T) since T-Mobile’s IPO in April 2007.  As shown, after its IPO, TMUS posted large but temporary gains. In fact, after falling back below the IPO price six months after debuting, the stock wouldn’t recover those levels for another nine years. Meanwhile, Verizon was the clear leader of the pack and more or less meandered sideways. TMUS had caught up to Verizon by 2017, and come 2020 and its merger with Sprint nearing completion, TMUS began to run away as the clear winner. Today, the stock has now risen 253.8% since its IPO compared to a modest 13.7% gain from VZ and a dreary 42.8% loss for T in that same span.

Compared to the S&P 500, once again T-Mobile has been the clear winner.  As shown below, T-Mobile is the only telecommunication services stock that has outperformed (albeit marginally) the S&P 500 since its debut in 2007. Meanwhile, Verizon and AT&T are underperforming by wide margins.

Finally, comparing these stocks’ market caps, T-Mobile didn’t hold a candle to its competitors for much of its history.  The merger with Sprint which completed in 2010 significantly lifted the company’s valuation, bringing it within a much more tangible reach of VZ or T. However, it still didn’t catch up for another couple of years. In that time, TMUS managed to continue to increase its market cap while VZ and T were in the midst of steady downtrends. By the third quarter of 2022, TMUS surpassed both VZ and T.  Today it is not only the largest wireless telecom by market cap, but it is also the only one whose valuation is making new highs.