Bespoke’s Brunch Reads – 12/24/23
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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On This Day in History:
A Christmas Truce: On Christmas Eve, 1914, amid World War I, Christmas carols echoed across battlefields as soldiers along the Western Front initiated a spontaneous act of humanity and unofficial ceasefire, crossing trenches to meet their adversaries in no man’s land. This extraordinary occurrence saw troops engaged in seasonal greetings, sharing rations, and participating in soccer matches together. This truce, though brief, demonstrated a unique human capacity for empathy and camaraderie amid war.
In 2005, a film called Joyeux Noël, which translates to “Merry Christmas,” vividly brought to life this story of the Christmas Truce. It delves into the experiences of French, German, and Scottish soldiers who, amidst the horrors of war, found a common ground in the spirit of Christmas.
Electric Vehicles
As Tesla’s fight with Sweden escalates, the EV firm is hiring a ‘hands-on’ Nordic expert with a knack for problem-solving (MSN)
Sympathy strikes across Nordic countries in reaction to Swedish Tesla employees’ demands for collective bargaining have forced the automaker to hire an expert in the region to help tame the escalating labor disputes. Tesla’s refusal to engage in standard collective bargaining practices in Sweden has led to operational disruptions, including halted services and deliveries. Tesla hopes its new hire can get the issues settled, especially with Elon Musk so outspoken about his opposition to unions. [Link]
E-scooter company Bird files for bankruptcy (Electrek)
Global e-scooter company Bird has filed for bankruptcy in the US but will continue its operations in Canada and Europe. Bird’s US operations have faced challenges, including a significant drop in its stock value and delisting from the NYSE. Bird has also faced tough competition and regulatory challenges in the e-scooter market. The industry overall is experiencing mixed fortunes, with some companies facing layoffs and others, like Lime, reporting growth. [Link]
U.S. Battery Production Is Going … Great, Actually? (Heatmap News)
The EPA’s new emissions stardards, set for 2032, imply that 67% of new vehicles will need to be electric by 2032, posing a challenge due to the Inflation Reduction Act’s restrictions on EV components from certain countries. Despite this, a report from the Environmental Defense Fund shows promising growth in US battery production, exceeding expected demand by 2028. This increase in domestic production could help automakers meet the standards and allow consumers to benefit from EV tax credits. [Link]
Economic Trends
AI gives birth to AI: Scientists say machine intelligence now capable of replicating without humans (Fox News)
Large AI models, like those behind ChatGPT, can now autonomously create smaller, specialized AI systems. To create self-evolving AI, large models are building smaller ones, without the help of humans. What researchers believe is that this process will help all models collaborate and build out an intelligence ecosystem, basically all autonomously. Right now, these AI-built models are good for practical tasks that humans can use in everyday life. Even your dishwasher and coffee maker could use AI! [Link]
Microsoft Agrees to Remain Neutral in Union Campaigns (NYT)
Microsoft declared its neutrality towards unionization efforts in the US, a group that includes about 100,000 workers. This decision follows a neutrality agreement with the Communications Workers of America, under which Microsoft’s video game workers unionized without a formal election. Now union leaders and Microsoft will discuss issues stemming from AI. AI experts from Microsoft will inform union leaders about AI developments at the company and attempt to mitigate concerns like job displacement as a result of the quickly evolving technology. [Link]
Rite Aid faces 5-year facial recognition ban after FTC accuses it of “reckless” use of AI tech (Axios)
With retail crime on the rise and of much discussion in the media lately, facial recognition has become popular to identify those they believe to be shoplifting and causing other issues in stores. An FTC complaint suggests that Rite Aid failed to use the technology responsibly, claiming that it “disproportionally impacted people of color.” Many of the alerted results of the facial recognition came back as false positives. Rite Aid says that it disagrees with the claims and only uses the technology in a limited capacity. [Link]
The City That’s Trying to Replace Politicians With Computers (It’s Working) (WSJ)
In Porto Alegre, Brazil, Councilman Ramiro Rosário pioneered the use of ChatGPT to draft a law, marking a significant shift in legislative processes. This law, aimed at preventing the local water company from charging for stolen water meters, was passed unanimously and was the country’s first to be entirely written by AI. This could be the start of a new direction in governance, suggesting increased efficiency and cost-effectiveness in public administration, but it also raises questions about ethical practices and the future role of human legislators in policymaking. There was certainly some pushback against Rosário when others found out he didn’t write any of it. [Link]
Christmas
Just How Rich Were the McCallisters in ‘Home Alone’? (NYT)
Home Alone, is a Christmas classic. The question that has been stirring on social media as the holiday season rolls around is, what exactly did Mr. McCallister and Mr. McCallister do to afford all that they had? The film takes place in a real house in Winnetka, Illinois, one of the most expensive neighborhoods in the country. The movie suggests Kevin’s mom is a fashion designer and his dad a businessman. The family’s wealth is further implied by their ability to accommodate a large number of people and the luxurious lifestyle they lead, despite not paying for their trip to Paris, which was funded by Uncle Rob. [Link]
The Ancient Origins of the Christmas Wreath (WSJ)
Wreaths are a Christmas Staple. The tradition dates back to ancient cultures, including the Egyptians, Greeks, and Romans, and served various symbolic purposes. The Vikings introduced the Yuletide wreath as part of their winter solstice celebrations, which later evolved into the Christian Advent wreath. The practice of decorating doors with wreaths gained popularity in America in the 20th century, largely influenced by Louise B. Fisher’s creative designs at Colonial Williamsburg, leading to the widespread custom of decorating front doors with festive wreaths during the holiday season. [Link]
Billionaire Endeavors
Jeff Bezos, Elon Musk say human population not nearly big enough: ‘If we had a trillion humans, we would have at any given time a thousand Mozarts’ (Yahoo Finance)
Jeff Bezos and Elon Musk, two prominent billionaires, share a vision for expanding human presence in space. Bezos, with Blue Origin, envisions a future with a trillion humans living across the solar system, facilitated by robust space infrastructure. Musk, leading SpaceX, emphasizes the need for humanity to become a multi-planet species, focusing on Mars colonization. Both stress the importance of population growth and space exploration for the future of civilization. [Link]
Immigration
A run-down motel became an accidental sanctuary for hundreds of migrants. In them, its owner found renewed purpose and meaning. (Denverite)
Yong Cha Prince planned to close her motel in Denver but found a new purpose when she sheltered Venezuelan migrants in need. The Western Motor Inn became a home for about 300 people seeking better lives in the US. It has made Prince happy to be able to care for those living at the motel, but the future of the community is uncertain due to the motel’s deteriorating condition and financial challenges. [Link]
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The Bespoke Report – 2024 Annual Outlook
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Overbought Breadth Not Going Away
A small number of (mega-cap) names have done the bulk of the heavy lifting for market-cap-weighted S&P 500 performance this year, but that does not steal from the fact that breadth has been solid. As shown below, the S&P 500’s 10-day advance decline line—which essentially measures the ten-day average of the daily net percentage of stocks in the index trading higher/lower—has shown positive readings 57.9% of the time in 2023 and is right in line with the annual average dating back to 1990.
Within this year’s respectable breadth readings has been a particularly strong run over the past couple of months which we first highlighted in yesterday’s Sector Snapshot. As shown below, the 10-day advance-decline (A/D) line has pretty consistently sat at least one standard deviation above its historical average throughout November and December. In other words, the past couple of months have consistently seen historically large swathes of the market trading higher.
Looking at the past 50 trading days, two-thirds of the time have seen the 10-day A/D line sit in overbought territory. Of all rolling 50-day periods, there have only been two other times when breadth by this measure has been overbought on such a consistent basis. The most recent of these was in early 2019 when it was overbought 70% of the time. Before that, you’d need to go back to 2010 to find a reading as high.
Bespoke Stat Sheet — 2023
We’ve put together a slide deck featuring some of our favorite stats published throughout the year. In this report we provide a month-by-month review of some of the most important and interesting market stats as they happened in real time, in bullet point format. Enjoy!
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Bespoke’s Morning Lineup – 12/22/23 – Wrapping Things Up
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.
“The clash of ideas is the sound of freedom.” – Lady Bird Johnson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
If you’re planning on flying somewhere in the next week, you’re going to have a lot of company. According to AAA, a record 39 million Americans will travel by air this holiday season, topping the prior record in 2019. That means that millions of Americans will be going through the ‘odorous’ process of taking their shoes on and off just to get through airport security, and we can all thank the ‘shoe-bomber’ who attempted to light his explosive-laden sneakers on fire while on a flight from Miami to Paris on this day in 2001. Thankfully, alert crew members and passengers aboard that flight were able to restrain the shoe-bomber, but even though he was unsuccessful, we’re all still paying the price 22 years later.
Dow futures are making it look like a moderately negative morning for equities on this last trading day before Christmas, but those numbers are skewed by Nike (NKE) which is trading down over 12% in reaction to weak earnings after the close yesterday. If NKE’s current declines carry through to the closing bell, it would be the second worst one-day reaction to earnings for the stock in at least 20 years, and if it finishes the day down more than 12.8%, it will be its worst earnings reaction day since at least 2001.
S&P 500 and Nasdaq futures are flat, treasury yields are lower, and crude oil is modestly higher. That could all change after 8:30 given the slug of economic data on the calendar that includes Personal Income, Personal Spending, PCE Deflator, and Durable Goods. Then, at 10, we’ll get New Home Sales and Michigan Sentiment. After that, there’s not a lot on the calendar, so expect things to slow down for the remainder of the day, but don’t forget to be on the lookout for a CNBC appearance at 11: 30 and our Year End report which will be posted and sent out later today.
The last week of the year has traditionally been thought of as a positive time for stocks, and for the most part that has been true. Over the last 20 years, though, median returns haven’t been nearly as positive. As shown in the chart below, while the S&P 500’s median post-WWII performance during the last week of the year has been a gain of 0.59% with gains just over two-thirds of the time, over the last twenty years, the median gain has been just 0.02% with gains half of the time.
On the right side of the chart, we have also summarized the S&P 500’s performance under various performance scenarios like this year. In the 19 years since 1945 that the S&P 500 was up 20%+ heading into the last week of the year, its median performance in the last week was a gain of 0.85% with gains 79% of the time. Similarly, in the 23 years when it was up 2.5%+ MTD, its median performance in the last week of the year was also a gain of 0.85% with gains 78% of the time. Lastly, in the eight prior years that the S&P 500 was up 20%+ YTD and 2.5%+ MTD, its median performance in the last week of the year was a gain of 1.24% with gains seven out of eight times.
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The AI Race is Closer Than It Seems
The keyword of the year in markets has been AI, and besides Nvidia (NVDA), whose chips power most of the AI-related applications, two of the most high-profile companies competing in the sector have been Alphabet (GOOGL) and Microsoft (MSFT). Most people forget, but it was back in 2016, six years before Chat-GPT even came out, that Alphabet CEO Sundar Pichai declared that Google was an “AI-first company.” Pichai may have been ahead of the game, but when Chat-GPT first launched late last year, it was MSFT that found itself in the pole position while the consensus quickly declared that Alphabet missed the boat on AI. This sentiment was reinforced throughout the year as there were numerous points where Alphabet made negative headlines due to its shortcomings in AI.
Given the headlines, you’d think that the amount of daylight between the performance of MSFT and GOOGL this year would be wide, but the charts say otherwise. As shown in the charts below, they’re both on pace to close out the year right near their highs, and it’s GOOGL that is closer to a new high. Not only that but on a YTD basis, it’s GOOGL (58.99%) that is outperforming MSFT (54.9%) rather than the other way around.
To be fair, since the launch of Chat-GPT on 11/30/22, MSFT is still outperforming GOOGL, but the gap between them has been narrowing. With MSFT up 45.5% and GOOGL up 38.8% since Chat-GPT introduced itself to the world, less than seven percentage points separates the two stocks. What’s notable about the performance of the two during this time is that while MSFT has been in the lead most of the time, there have been multiple periods where the lead shifted between the two. The AI race between GOOGL and MSFT has been a lot closer than this year’s headlines would have you believe.
Chart of the Day – Brazil Breaking Out
Bespoke’s Baskets Update — December 2023
Bespoke’s Morning Lineup – 12/21/23 – Two Extremes
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“There was no established way for a man to tell his wife he was going to the moon. A man could tell his wife he was going to sea or going to war; men had been doing that for millennia. But the moon? It was a whole new conversation.” – Apollo 8: The Thrilling Story of the First Mission to the Moon
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Treasury yields are doing little this morning and equity futures are looking to reclaim some of yesterday’s afternoon weakness. Crude oil and copper are modestly lower, while gold is flat. In Europe, stocks are lower as markets there closed before yesterday’s afternoon reversal. On the economic calendar, there’s a ton of data to be on the lookout for including revised GDP, Personal Consumption, Core PCE, jobless claims, Philly Fed, Leading Indicators, and finally the KC Fed report at 11 AM.
It was a tale of two markets yesterday. In the morning, the S&P 500 rallied to new 52-week highs only to give it all back and more in the afternoon. By the time the closing bell rang, stocks were at the lows of the day and finished down over 1%. There aren’t many places in the world where you can go skiing in the morning and swim in the ocean in the afternoon, but the market did its version of that yesterday.
While yesterday’s reversal was jarring, in the context of a daily chart of the S&P 500 ETF (SPY), it barely looks like anything more than a blip. Even after yesterday’s decline, SPY is more than 5% above its 50-day moving average (DMA) and more than 8% above its 200-DMA.
While yesterday’s reversal doesn’t look like much on a one-year chart of SPY, in the ETF’s history dating back to 1994, reversals of that type have been incredibly uncommon. The last time the ETF traded at a 52-week high on an intraday basis but finished the session down over 1% was back in April 2014, and in the ETF’s near-30-year history, there have only been seven other occurrences before yesterday. In the chart of SPY below, we have marked where each of those prior reversals occurred with a red dot. As shown, none of the prior occurrences marked a significant top for the market. In today’s Morning Lineup, we provided an analysis of SPY’s performance following prior reversals. Sign up to read the entire report.
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