Bespoke Brunch Reads: 3/5/23
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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Climate Disruption
As Oil Companies Stay Lean, Workers Move to Renewable Energy by Clifford Krauss (NYT)
While energy companies avoid adding headcount and keep a laser focus on cashflows, renewables are rapidly scaling up and are poaching talent in the process, meaning American jobs are rapidly shifting from the oilpatch to wind and solar farms. [Link; soft paywall]
California senate pushes to stabilize the homeowners insurance market by Morgan Rynor (MSN/KFMB San Diego)
After a catastrophic run of forest fires, fire insurance in California is either not available at all or becoming prohibitively expensive, making homeowners far more vulnerable to the still-significant fire risk that has beset much of the state. [Link]
Prices
Column: With winter almost over, Europe’s gas stocks are at seasonal record high by John Kemp (Reuters)
With winter winding down, EU and UK gas storage is still 61% full, with more than 680 terawatt hours worth of gas in inventory. That offers hope that building supplies ahead of next winter will be a much easier task. [Link]
Sellers’ Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency? by Isabella M. Weber and Evan Wasner (UMass Amherst Economics Working Papers)
New research that argues post-COVID inflation is mostly about expanding market power and margins rather than excessive demand. [Link]
Lilly to cut some list prices by 70% and offer $25 insulin by Bhanvi Satija and Patrick Wingrove (Reuters)
After a $35 price cap on insulin was extended to most Americans who have insurance, drugmakers have made equivalent cuts to the out-of-pocket costs of their drugs in a move that will make it much easier for diabetics to access insulin. [Link; registration required]
Ukraine
In an Epic Battle of Tanks, Russia Was Routed, Repeating Earlier Mistakes by Andrew E. Kramer (NYT)
The latest egregious blunder from Russian war planners: massed tank attacks with little infantry support or tactical flexibility to deal with ambushes, mines, and Ukrainian anti-tank doctrine. [Link; soft paywall]
Trapped In The Trenches In Ukraine by Luke Mogelson (NYer)
Remarkable dispatches from the front lines of the war in Ukraine. A very long read, but filled with incredible and engaging detail about the soldiers and environment on the battlefield. [Link; soft paywall]
National Defense
‘Havana Syndrome’ Not Caused By Energy Weapon Or Foreign Adversary, Intelligence Review Finds by Shane Harris and John Hudson (WaPo)
The malady blamed on some sort of energy weapon wielded by foreign adversaries is much more quotidian than science fiction, an embarrassing challenge to a narrative that had treated ‘Havana syndrome’ as some sort technological wonder. [Link; soft paywall]
The First Battle of the Next War by Mark F. Cancian, Matthew Cancian, and Eric Heginbotham (CSIS International Security Program)
This report summarizes the findings of a wargame run by the CSIS and designed to simulate Chinese invasion of Taiwan. The result of US/Taiwanese/Japanese resistance to a Chinese invasion is typically success but at massive cost; generally, the failure is thanks to stiff Taiwanese resistance once Chinese troops have landed. [Link; 165 pg PDF]
Crypto
Crypto Companies Behind Tether Used Falsified Documents and Shell Companies to Get Bank Accounts by Ben Foldy and Ada Hui (WSJ)
One of the owners of Tether Holdings, issuer of the tether stablecoin, admitted an effort to “circumvent the banking system by providing fake sales invoices and contracts for each deposit and withdrawal” per emails review by the WSJ. [Link; paywall]
ETFs
Are you short Jim or long Jim? by Alexandra Scaggs (FTAV)
Want to bet on or against the stocks that are mentioned by CNBC personality Jim Cramer? Luckily there are now ETFs for each. [Link; soft paywall]
Time Marches On
US senators reintroduce bill to make daylight saving time permanent by David Shepardson (Reuters)
A bipartisan group of 12 Senators wants to do away with twice-per-year clock changes in favor of a year-round constant time. [Link; registration required]
Guns
74,000 & growing: Some NC police departments stockpile guns rather than release them by Virginia Bridges (The Charlotte Observer)
Police departments in the 10 largest cities across North Carolina number 74,000 and counting as firearms seized during police actions sit in storage. State law bans cops from destroying guns for any reason. [Link; soft paywall]
Social Media
I Gave Into The New Twitter Algorithm And I Went Way Too Viral by Ryan Broderick (Garbage Day)
An anecdotal but convincing analysis of what is making Twitter’s algorithm tick these days, and a depressing accounting of how much the site has deteriorated. [Link]
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Have a great weekend!
Bespoke’s Morning Lineup – 3/3/23 – Three Was Enough?
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“For the execution of the journey to the Indies I did not make use of intelligence, mathematics or maps.” – Christopher Columbus
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
After three weeks of declines, it was looking like March would only add to the tally. Thursday’s rally pushed the S&P 500 into positive territory for the week, though, and with futures indicated higher now, equities are on pace for a positive week…if they can get through today. It’s a relatively quiet day on the economic calendar today with PMIs for the services sector, the only reports scheduled for release. These are important indicators to watch for signs of whether or not the economy is running too hot, and the international versions of these reports released this morning showed strength. January’s economic data fed a narrative that the economy just wouldn’t quit even as the Fed tried its best to squash it. This week’s data for February like Consumer Confidence, Chicago PMI, and ISM Manufacturing, though, weren’t exactly positive, and they all missed expectations.
One area of the markets not rallying this morning is crypto. After a 50% rally through its high over Presidents’ Day weekend, bitcoin has been correcting for the last two weeks capped off with a 4%+ decline in early trading today. After today’s drop, the pullback is close to 10%, and bitcoin is on pace to close below its 50-day moving average (DMA) for the first time in nearly two months.
A break below the 50-DMA is typically considered a bearish signal, but in bitcoin’s case, this type of pattern hasn’t been followed by a clear trend. During the parabolic runup from 2016 through 2017, any time bitcoin closed below its 50-day moving average after trading above it for at least 50 days it almost always immediately recovered to new highs. Beginning in 2018, though, bitcoin was slower to recover following these types of breaks. In three of the four periods since the start of 2018, prices experienced pretty sizable pullbacks at least in the short term, but they were still always followed by new highs. In dollar terms, last year’s pullback in bitcoin was unlike any other, but in percentage terms, it has been in this type of situation before. As bitcoin has ‘matured’ it has tended to follow more typical technical patterns versus the early days when all it did was win, so a pause in this year’s rally, at least in the short-term, wouldn’t be surprising.
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The Bespoke 50 Growth Stocks — 3/2/23
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were three changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. You can learn more about our subscription offerings at our Membership Options page, or simply start a two-week trial at our sign-up page.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Sentiment Back to Bearish
The consistency of declines throughout February and to start the month of March has sent sentiment decisively lower. The latest data from the American Association of Individual Investors (AAII) showed 23.4% of respondents reported as bullish, up modestly from 21.6% last week but still down significantly from 34.1% two weeks ago. With less than a quarter of respondents reporting as bullish, bullish sentiment continues to sit firmly below its historical average of 37.5% for a record 67 straight weeks.
Meanwhile, bearish sentiment has continued to grind higher reaching 44.8% after three straight weeks of increases and hitting the highest level of the short year so far.
At the start of February, the bull-bear spread ended its record streak of negative readings as bulls finally outnumbered bears. The surge in pessimism in the past couple of weeks, though, has resulted in more negative bull-bear readings.
In addition to sentiment taking a more bearish tone, far fewer respondents are reporting neutral sentiment. After the highest reading in nearly a year last week, only 31.8% couldn’t make up their mind this week. That eight percentage point drop from last week was the largest weekly decline since November.
In addition to the AAII survey, other weekly sentiment readings have likewise made a quick reversal back towards negative sentiment. Combining the readings of the AAII survey with the Investors Intelligence survey and the NAAIM Exposure Index, sentiment has gone from the most cheery outlook in over a year down to pessimism right in line with the rest of the past year. In fact, the 1.36 point decline since the high three weeks ago ranks as the seventh largest decline in such a span since the composite begins in 2006.
Since sentiment is a contrarian indicator, the sharp bearish turn across these sentiment indicators ‘should’ be a signal for positive forward performance. However, that has not exactly been the case historically. In the table below, we show each prior week that the index has fallen at least 1.25 points without having done so in the prior three months. Of the dozen prior instances, performance has been mixed going forward. Click here to learn more about Bespoke’s premium stock market research service.
Home Prices Falling Fast
Updated data on home prices across the country came out earlier this week when the newest monthly S&P CoreLogic Case Shiller indices were published. This data is lagged by two months, but it gives us a look at where home prices ended the year in 2022.
Below is a table highlighting the month-over-month (m/m) and year-over-year (y/y) percentage change in home prices across the 20 cities tracked by Case Shiller. It also includes the national and composite 10-city and 20-city readings.
Home prices fell sharply from November 2022 to December 2022, with the national index down 0.81% and 11 of 20 cities down more than 1% sequentially. New York and Miami saw the smallest m/m declines with drops of less than 0.3%.
Looking at y/y price changes, while the national index still showed an increase of 5.76% from December 2021 to December 2022, two cities have now seen prices dip into the red on a y/y basis. Seattle home prices fell 1.78% for the full year 2022, while San Francisco prices fell even more at -4.19%. Given the unrelenting pullback in prices over the last six months, we’ll see more and more cities dip into the red on a y/y basis over the next few months.
Where home price trends get interesting is looking at the post-COVID action. In the aftermath of lockdowns, government stimulus, and the shift to “work from home” in many parts of the labor force, home prices across the country absolutely soared. By mid-2022, the national home price index was up 45% from the level it was at in February 2020 just before COVID hit. Areas on the West Coast and in the Southeast saw prices rise even more, with many cities seeing gains of more than 60% at their peaks.
Prices finally peaked last summer, however, as rate hikes by the inflation-fighting Fed quickly pushed mortgage rates to levels not seen in decades. Below is a chart showing how much home prices have fallen from their post-COVID peaks seen in mid-2022. The composite indices are only down 4-6% from their highs, but we’ve seen prices really take a hit out west with cities like San Diego, Seattle, and San Francisco already down double-digit percentage points.
Given the pullbacks in home prices over the past six+ months, below is a look at where prices currently stand relative to their pre-COVID levels at the end of February 2020. Notably, San Francisco — which has seen prices fall the most from their highs — is currently up the least since COVID hit with a gain of 23%. Other cities where home prices are up less post-COVID than the national indices include Minneapolis, DC, Chicago, and Portland. Where home prices are still up the most is in Florida as prices in Tampa and Miami are still up 60% or more. Click here to learn more about Bespoke’s daily premium service.
Another Week Below 200K For Claims
Initial jobless claims continue to impress with this week’s reading being the seventh week in a row of sub-200K prints. Falling another 2K week over week to 190K, adjusted claims are now at the lowest level since the last week of January.
While the seasonally adjusted number is low, before taking that into account claims have actually yet to drop below 200K. Claims are falling as is normal for this point of the year with the past couple of weeks historically being some of the most consistent to experience week-over-week declines on a historical basis. At current levels, claims are comparable to the equivalent week of the year from the past several years excluding 2021.
As for continuing claims, the past couple of weeks have seen the readings begin to pivot lower after rising to the highest level of the year at the start of February. Continuing claims totaled 1.655 million which is the lowest level since the week of 1/21. Albeit claims remain off their best levels of the pandemic (for both initial and continuing claims), they remain healthy headed into next week’s nonfarm payrolls release. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 3/2/23 – Leveling Off
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“It is amazing how many drivers, even at the Formula One Level, think that the brakes are for slowing the car down.” – Mario Andretti
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If you’re looking at the positive Dow futures this morning, you’re getting a misleading picture of the setup heading into the trading day. That’s because a 15%+ rally in salesforce (CRM) is responsible for about 100 points of the rally. Without CRM, the Dow would also be poised to open lower. Both the S&P 500 and Nasdaq are trading lower with Tesla (TSLA) acting as a bigger drag on the Nasdaq.
Stocks have been in a bit of a rut ever since the Presidents Day weekend as the S&P 500 has declined over 3% and closed lower than its opening print on all seven trading days. In total now, we’ve seen a pullback of just over 5% since the recent peak in early February. Today, the focus of investors will be on Non-Farm Productivity, Unit Labor Costs, and jobless claims all at 8:30.
The year is only two months old, but already some of the typical seasonal trends in the economy seem to be bucking the trend. Whether it was due to the weather, seasonal adjustments, or just underlying strength, economic data surprised to the upside after a December that was mostly weaker than expected.
One area where the pattern has been the opposite of the seasonal norms at this point in the year is gasoline prices. While national average prices, as tracked by AAA, typically only see marginal gains in the month of January, this year prices surged more than 9%, which ultimately translated to higher levels of inflation. In February, though, we saw much of the increase in prices from January reverse itself, and prices finished the month down more than 4% for the largest February decline since 2006. As a result of that pullback, the national average price, which was up way more than normal YTD at the end of January, is now actually up slightly less YTD this year than in an ‘average’ year. While gas prices were an accelerant for inflation in January, they’re likely to be a damper on it in February.
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Bespoke Market Calendar — March 2023
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Bespoke’s Morning Lineup – 3/1/23 – Fresh Start
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“If you find yourself suddenly wearing a hot cup of coffee on the way to work, the day can only get better from there.” – Anonymous
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Futures were looking to start the new month off on a positive note, but that tone has shifted and the current setup is for a modest decline at the open. Following yesterday’s stronger-than-expected inflation data in France and Spain, this morning it was Germany’s turn to report hot inflation data, and that predictably, has been followed by hawkish commentary from ECB officials. In China, stronger-than-expected Manufacturing PMI data led to a 4% rally in Hong Kong’s Hang Seng, but stronger growth in China will be greeted as inflationary by the market, hence the move higher in US treasury yields. Economic data on the calendar today includes Manufacturing PMI reports from S&P and ISM as well as Construction Spending. Minneapolis Fed President Kashkari will also be speaking this morning, so you can expect the headlines from that even to be hawkish.
2023 is already 16% complete, so we can start to get a read on how trends are shaping up. Below we summarize the performance of S&P 500 sectors through the end of February. On a YTD basis, there’s been quite a bit of disparity in sector performance as four sectors are up over five percent, and two are down over 5%. Between the extremes, more than 20 percentage points separate the best-performing sector (Consumer Discretionary) which is up 12.7% from the worst-performing sector (Utilities) which is down close to 8%. Looking at where sectors finished out February relative to their trading ranges, not a single sector is overbought relative to its 50-day moving average, nearly half are below their 50-day moving averages, and four sectors are oversold. That’s not what you would expect to see in a year where the S&P 500 is up nearly 4% YTD.
While there’s a wide dispersion in sector performance after the first two months of this year, it’s a big improvement versus where the market stood at this time last year. Twelve months ago, more than 40 percentage points divided the best-performing (Energy) and the worst-performing sectors (Consumer Discretionary), six sectors were oversold, and the only sector above its 50-DMA was Energy. February wasn’t a great month for stocks, but it sure beats where things stood last year at this point.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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