Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles 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.

Lighting Roselle: On January 19th, 1883, Thomas Edison introduced the first electric lighting system using overhead wires in the small town of Roselle, New Jersey. Edison had already etched his name in history books for his invention of the incandescent bulb. Still, he sought to demonstrate that his direct current electricity system could reliably provide light to an entire community. So, with the help of his team, Edison installed a network of overhead wires connected to a centralized power station, connecting electricity to homes, businesses, and even the local church in Roselle. The town’s street lamps were revamped from the dim gas and kerosene lighting of the time. Roselle became a model for other towns and cities to follow. It also set the stage for competition between Edison’s direct current system and Nikola Tesla’s alternating current system.

Health & Wellness

The U.S. government runs on Celsius. Just ask anyone on Capitol Hill. (Washington Post)
Celsius energy drinks have become Capitol Hill’s fuel, powering reporters, staffers, and even lawmakers through long hours of legislation and brinkmanship. Loved for its sleek cans, bold flavors, and hefty caffeine punch, Celsius has taken over vending machines and office fridges. Some Congress members even keeping secret stashes. While it’s marketed as a “healthier” alternative to traditional energy drinks, its growing cult status among Hill insiders feels like the perfect chaotic pairing for the high-stakes world of US politics. [Link]

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Last weekend’s Barron’s had an article citing the fascinating results of a study from Arizona State professor Hendrik Bessembinder. In a recent paper, Bessembinder studied the performance of more than 29,000 stocks from 1925 through 2023 and found that most stocks lost money over time and that a small number of stocks are responsible for the majority of the market’s long-term gains. Looking back at stocks with a minimum of 20 years of returns, the study found that Nvidia (NVDA) had the greatest annualized compound return, which should surprise no one. Looking further back, though, of the stocks that have been around since 1925, the three with the biggest gains were Altria (MO), Vulcan Materials (VMC), and Kansas City Southern (KSU).  All three have generated annualized gains of over 14% (table below is from the paper). When you think of the market’s biggest winners over the last 100 years, would you have ever guessed the trio would include a tobacco company, an asphalt company, and a railroad?

It’s hard to imagine a sector of the economy that has been more out of favor in recent decades than tobacco. Given its addictive nature and how popular it was for most of the last 100 years, though, Altria’s strength makes more sense. When it comes to Vulcan (VMC), it doesn’t get less sexy than asphalt. Still, as the auto industry exploded over the last century, especially after WWII, and more Americans moved out of cities and into suburbs, none of it would have been possible without a company like Vulcan laying pavement. Just as networking companies have facilitated the movement of data around the internet since the late 1990s, companies like Vulcan and even Kansas City Southern can, in some ways be thought of as the networking companies of the physical economy of the 20th century.

When the same study is conducted in 2125 looking at the best-performing stocks since 2025, will NVDA be as exciting as a tobacco or asphalt company is now?  If not, which companies of today will end up as the leaders of the next century?

One of the later data releases this morning was homebuilder sentiment from the NAHB.  The NAHB’s Housing Market Index was expected to come in slightly weaker versus last month, falling to 45 versus 46 in December. Instead, it rose one point, which marks the highest reading since April.

At current levels, homebuilder sentiment is basically in the middle of the past three years range, but that also ranks only in the 31st percentile of all months in the index’s 40 years of history.  This month’s improvement in the headline number came on increases in both present sales and traffic. But countering that was future sales plummeting six points to a three-month low.

Below we show the spread between future and present sales indices.  In December, that spread surged to the highest level on record, meaning it was a historically optimistic outlook from homebuilders contrary to what was being reported for present sales.  The inverse moves this month marks a reversal in that spread, although it is still at one of the highest levels in over a decade.

Geographically, homebuilder sentiment was mixed in January with declines in the South and Midwest countered by an increase in the West and a big jump in the Northeast.  As shown below, sentiment is currently the highest in the Northeast. In fact, that index is now at the most elevated level since May 2022. That compares to other regions in which current readings are more middling versus recent years’ readings.

Turning over to homebuilder stocks, the group proxied by the iShares Home Construction ETF (ITB) had opened lower and hit intraday lows right before the NAHB report was released, but the stronger than expected reading has sent shares higher as it is now up 0.23% on the day. Albeit ITB is up today, that is only putting a small dent in what has been a dramatic drop recently.

As shown below, the ETF was hit hard during the recent run up in rates over the past two months and at points was trading at historically oversold levels.  The first of homebuilder earnings earlier this week offered some respite as KB Homes (KBH) reported a top and bottom line beat after the closing bell Monday (we also covered the company’s conference call in one of our latest Conference Call Recaps). The stock is up over 7% since reporting and the broader group using ITB is up a similar degree in that time. With that said, recent declines have done their damage. The 200-DMA has begun to roll over and the 50-DMA has already been falling sharply.  Currently, ITB’s 50-DMA is only 36 bps above that longer term 200-day moving average, putting the ETF on watch for its first death cross since March 2022.

The homebuilders are a rate sensitive area, meaning price action recently and in the near future is likely to be heavily impacted by where rates go.  With that said, earnings are also always a catalyst. Below we show a snapshot of our Earnings Explorer and the next S&P 1500 Homebuilder stocks scheduled to report. As shown, these names have generally seen positive price action on earnings and for three of the five, guidance has impressively been raised over 10% of the time historically with solid EPS and sales beat rates to boot.