Bespoke Brunch Reads: 1/15/23
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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Energy Markets
Winter Storm Elliott (PJM)
A detailed slide deck offering preliminary explanations for the collapse of most of the East Coast’s electrical grid offers some fascinating insight: an unprecedented demand surge came as a wide range of natural gas generators shut off amidst shortages of fuel. [Link; 32 page PDF]
U.S. Department of Energy rejects initial bids to resupply oil stockpile by Richard Valdmanis (Reuters)
A first round of bids to replace crude sold from the SPR has been rejected by the Department of Energy as the government fine-tunes its procedures for the unprecedented management of crude markets that sales and purchases have entailed. [Link]
Vaporware
US farmers win right to repair John Deere equipment by Monica Miller (BBC)
A memorandum of understanding between John Deere and the American Farm Bureau Federation has cleared the way for farmers to repair equipment that breaks down. [Link]
Exclusive: Surveillance Footage of Tesla Crash On SF’s Bay Bridge Hours After Elon Musk Announces “Self-Driving” Feature by Ken Klippenstein (The Intercept)
A Tesla that was using the “Full Self-Driving” feature enabled by Tesla this fall caused a major pile-up on a San Francisco freeway when it abruptly braked and moved in to another lane. [Link]
Food & Drink
Digital nomads now come first for Mexico City’s gig workers by Samuel Burleigh and Stpehania Corpi Arnaud (Rest of World)
Lured by the lower cost of living and high quality amenities that elite enclaves offer within Mexico City, foreign digital nomads are making waves with their bland tastes. [Link]
A Nonalcoholic Amaro ‘Falso’ From St. Agrestis by Florence Fabricant (NYT)
The latest offering for dry January is a zero-ABV “amaro” that mixes bitter botanicals and a hint of carbonation to replace the alcoholic version. [Link; soft paywall]
Banking
JPMorgan claims entrepreneur Charlie Javice duped bank into buying $175M startup: suit by Ariel Zilber (NYPost)
A financial planning site purchased by JPMorgan in 2021 overstated its customer count by almost 4mm, defrauding the bank in the course of its acquisition. [Link]
Goldman Sachs Advises Investors To Go Risk-Free In 2023 by Tracey Longo (Financial Advisor Magazine)
High yields in money market funds are stiff competition for risk assets per a Goldman Sachs analysis that advocates for skepticism towards risk assets this despite a torrid start to the year. [Link]
Chinese Bank Offers Customers Free mRNA Vaccine in Return for $500,000 Deposit (Bloomberg)
“Tier 3” customers get the luxury treatment, including not only top-of-the-line COVID vaccines but also discounts at the Four Seasons a chance to test drive a Bentley. [Link]
Solutions
The ozone layer is on track to recover within decades as harmful chemicals are phased out, scientists report by Laura Paddison (CNN)
An international treaty has led to a 99% decline in the use of chemicals that deplete the ozone layer has been wildly successful, with expectations for full recovery by 2040. The results offer a hopeful model for climate action, including via geoengineering. [Link]
Riddle solved: Why was Roman concrete so durable? by David L. Chandler (MIT News)
Roman concrete included chunks of calcium carbonate thanks to its high-temperature manufacturing process. The result was a much stronger concrete than anything produced today. [Link]
House of Mouse
Disney Revises Pricing Policies at Its Parks by Brooks Barnes (NYT)
Theme parks will cut parking fees and reduce the number of park days offered at their lowest price but management insists they aren’t a reflection of softer demand. [Link; soft paywall]
Options Mania
Higher Rates and Tech Selloff Fuel Options Boom by Eric Wallerstein (WSJ)
The surge in options activity during the huge post-COVID bull market is sticking around, as investors are finding the derivatives just as useful for speculation to the downside as the upside. [Link; paywall]
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Have a great weekend!
The Bespoke Report – 1/13/23
This week’s Bespoke Report newsletter is now available for members. (Log in here if you’re already a subscriber.)
Since the start of Q4 last year we’ve seen a trend shift across a range of asset classes. Interest rates, the dollar, stocks, industrial metals, natural gas, and a range of other markets are moving in the opposite direction compared to most of last year. Some of this is down to luck – specifically related to the weather – but shifts from policymakers and economic data are also playing a major role. Despite trend shifts, US stocks have still not broken out. Earnings season is under way and could be the defining factor between whether bear market downtrends prevail or a new bull trend has been established.
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Bespoke’s Morning Lineup – 1/13/23 – Bank Bummer
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“We ended the year on a strong note growing earnings year over year in the 4th quarter in an increasingly slowing economic environment.” – Brian Moynihan
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.
Earnings season has arrived, and it has made its presence known with a thud. Of the eight major reports this morning, all but two (Citigroup and Wells Fargo) beat EPS forecasts, and only two (Bank of New York and Wells Fargo) reported weaker-than-expected revenues. The results don’t appear good enough for investors, though. Six of the eight companies that reported are trading down in the pre-market, and the two trading higher (Bank of New York and BlackRock) have seen just muted gains. On the flip side, stocks trading lower in the pre-market have all declined at least 1%, while Wells Fargo and Delta head into the opening bell with declines of over 4%. Given the weak reactions to earnings, overall equity index futures are also weak and indicating a decline of nearly 1% at the open. Interestingly, despite the fact that none of the major reports have been related to technology, it’s the Nasdaq that is doing the worst in the pre-market with a decline of over 1%
The fact that these companies have seen their share prices initially react negatively to their reports is a bit of a letdown but remember that collectively they have performed well to start the year. Except for UNH, all the stocks are positive YTD with gains of at least 3.5%. Heading into this morning’s report, DAL had rallied more than 20% YTD, so a pullback in response to earnings is completely understandable. UNH, though, is another story. Through yesterday’s close, the stock was already down 6.5% YTD and in oversold territory, so the bar didn’t look especially high to begin with.
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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The Bespoke 50 Growth Stocks — 1/12/23
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 twelve 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.
Bears Back Down
The S&P 500 has rallied impressively in the past week leading up to Thursday’s CPI print, and bullish sentiment has lifted along with it. While the reading remains low, the percentage of respondents to the weekly AAII sentiment survey reporting as bullish rose from 20.5% up to 24%. Bulls were higher only two weeks ago when the reading was at 26.5%
That rise in bulls has meant bearish sentiment has fallen to a notable level. For the first time since the first week of November and for only the eleventh time in the past year, bearish sentiment came in below 40%. Bearish sentiment has now fallen for three weeks in a row, which is the longest streak of consecutive declines since last August as well.
Although bullish and bearish sentiment are sending a more optimistic tone, the bull-bear spread remains heavily in favor of bears at -15.9. That grows the record streak of negative readings to 41 weeks in a row.
Last week, neutral sentiment leaped higher given the mid-single-digit declines in bulls and bears. Some of that move was given back this week with only 36% reporting as neutral. However, that remains an elevated reading at 4.6 percentage points above the historical average. Click here to learn more about Bespoke’s premium stock market research service.
Claims Drop But Were the Holidays Helping?
Initial jobless claims posted another low reading in the latest print, with national seasonally adjusted claims totaling only 205K. That was down slightly from 206K the previous week; a number revised up by 2K. After that revision, this week’s reading was the strongest showing for claims since the end of September.
Before seasonal adjustment, claims were considerably higher at 339.29K. At the end of the year and in the first weeks of a new year, claims tend to experience a significant seasonal increase which appears to be playing out in the current environment. This year’s reading is in line with the comparable weeks of the few years prior to the pandemic. As we also noted last week, this time of year tends to see the largest revisions in claims as well. In other words, from a seasonal perspective, claims can be a bit volatile in terms of actual levels and revised levels. So while the seasonally adjusted reading was solid and the non-seasonally adjusted number is nothing too concerning, the next several weeks will likely provide a clearer reading on how claims are trending.
Turning to continuing claims, this week’s print covered the final week of 2022. Like initial claims, the end of the year saw declines in continuing claims with the latest reading falling to a low of 1.634 million; the strongest level since the week of November 19th. Although that is a solid improvement following multiple months of claims rising rapidly, similary to initial claims, more weeks of data will help to provide a clearer picture given the effects of seasonality during the holidays.
We would also note, that although the drop in claims over the past two weeks has only put a small dent in the recent rise in claims, the 4.89% decline is historically large. That drop impressively ranks in the bottom 3% of all 2-week moves on record. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 1/12/23 – Bring An Umbrella Just in Case
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“What weather they shall have is not ours to rule.” – J.R.R. Tolkien
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.
In weather-speak, they call an atmosphere like this morning, the calm before the storm. Overnight in Asia, stocks were little changed and that was almost literally the case with the Nikkei rising just 0.01%. Chinese stocks were a little more biased to the upside with a gain of 0.20%. In Europe, the mood is considerably better as major benchmark indices in the region are all up over 0.50%. Bond yields in the US are modestly higher, and both crude oil and natural gas are higher after the latter attempts to bounce from 52-week lows reached on Tuesday following a massive three-week decline.
None of these moves really matter, though, as the 8:30 release of the December CPI – “the most important economic release in generations” – will dictate the tone of the trading day. With the President scheduled to speak on inflation later this morning, there is some speculation that the White House got an early look at the report and is looking to spike the ball on the administration’s policies to combat inflation.
If there’s one place where hyperbole rules, it’s in discussions pertaining to the market. We would argue, though, that the recent moves in natural gas may not have been talked about enough given how large the declines have been relative to history.
Let’s start with the short-term. Over the 15 trading days ending yesterday, natural gas dropped 36.9%. That alone is one of the most extreme downside moves in the history of the contract, but a week ago today, the 15-day decline was 46.4% which was the most extreme downside move on record (since 1990).
From a longer-term perspective, the declines have been just as large. In the 100 trading days ending Wednesday, the front month natural gas future declined 59.8% which also ranks as the most extreme downside move on record. The only other times there were declines of a magnitude in the ballpark of the current drop were in 2001 and 2006.
The scatter chart below compares the 15-day rate of change (x-axis) in natural gas prices to the 100-day rate of change (y-axis). The highlighted section at the bottom left with the most extreme downside moves over both a 15- and 100-day period all occurred so far in 2023. Whereas most other large 15-day declines followed periods when natural gas prices were up over the prior 100 trading days, the current period has been a snowball of weakness on top of weakness.
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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The Closer – Surging Copper, Soaring Franc – 1/11/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the surge in copper over the past week and what that has done for the Chilean Peso. We also check in on credit spreads and auto lending (page 1). We then pivot over to a look at the Euro and European stocks (page 2). Next, we dive into the BLS data of expenditure and income data for 2021 (page 3) followed by a recap of the strong 10 year reopening (page 4) and massive crude oil inventory build (page 5).
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Bespoke’s Morning Lineup – 1/11/23 – Zigging and Zagging
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“It is easy to quit; I’ve done it at least a hundred times.” – Unknown
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.
Flights across the US are grounded due to an outage at the FAA, but stocks remain airborne as futures are modestly higher across the board, and the Nasdaq is looking to extend its winning streak to four straight days. News flow looks to be relatively light as there are no major economic reports on the calendar, and the only earnings report is KB Home (KBH) after the bell. Tomorrow will be the big day of the week, though, when the December CPI will be released at 8:30. Then, on Friday we’ll start to get the first of the big earnings reports from the major banks.
Back on this day in 1964, the US Surgeon General issued a report on smoking that was thought to be so damaging to the tobacco industry that he waited until a Saturday when markets were closed to release it to limit the potential stock market chaos. The day after the report was released it was front page top of the fold news in the New York Times with a headline reading “Cigarettes Peril Health” and the sub-headlines “Cancer Link Cited” and “Smoking Is Also Found Important Cause of Bronchitis”. Besides the front-page headlines, the Sunday edition was rife with stories on the ‘revelation’ that smoking wasn’t good for you.
As much as the tobacco companies tried for decades to convince consumers otherwise, anyone with a minimal amount of intelligence who had ever smoked a cigarette probably already knew that it wasn’t something you did in order to get yourself into shape or good health. As far back as the 1940s, scientists had already made the link between smoking and lung cancer. Smoking was considered a vice for a reason! Even as many (or most) Americans already knew of the dangers of smoking, an official statement from the Federal government was a big deal, though, and would pave the way for more regulation of the sector. If you owned tobacco stocks heading into that weekend, you probably weren’t looking forward to Monday’s opening bell.
When the bell rang Monday morning, tobacco stocks opened lower, but by the end of the trading day, their performance was a surprise to most. Of the five major tobacco companies at the time, Reynolds American actually finished the day higher, and American Tobacco was unchanged on the day. Of the remaining three major tobacco stocks, none of them even finished the day down 2%. Perhaps the most amusing aspect of the New York Times market recap the following morning was that cigar stocks traded higher on the day as “cigar smoking received a relatively clean bill of health”. It looks like at least one part of the industry had effective lobbyists!
The performance of the cigarette stocks on the first trading day after the Federal Government first officially recognized the dangers of smoking illustrates once again how the market can defy consensus expectations. While the Surgeon General’s report on the dangers of smoking should have been a blow to cigarette stocks, the initial reaction to the report was muted. When everyone is zigging, the market often zags.
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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The Closer – Air Out of Gas, Fed Shifts, Inflation That Matters, 3y Auction – 1/10/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the fresh 52 week lows for natural gas and the implications for the Energy sector (page 1). We then provide an update of Fespeak’s recent tones (page 2). Afterward, we review the Fed’s preferred measure of inflation ahead of Thursday’s CPI print (page 3). We close out with a recap of today’s record setting 3 year note auction (page 4).
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