The S&P 500 Equalweight index, which gives each stock in the index an equal 0.2% weighting, is currently trading at the same level it was at back in April 2021.  Investors used to getting the standard 8-10% per year in the US stock market have gotten far less than that over the last two and a half years.

Below is a five-year price chart of the S&P 500 Equalweight index showing the sideways range it has been in for the last few years.

The spread between the S&P 500 Equalweight’s highest and lowest closing price over the last three years currently stands at 31%.  As shown below, 31% is an extremely low 3-year high/low range; well below the average of 75.5% seen across all rolling 3-year periods going back to 1992.  The tight spread now, though, comes after a period in which the high/low range had gotten well above its historical average.  And the pendulum continues to swing…

Take-Two Interactive’s (TTWO) subsidiary, video game publisher Rockstar Games, has created some buzz in the past 24 hours.  Originally scheduled for this morning, the company released the first trailer for the next installment of their popular Grand Theft Auto (GTA) series early last night after the video was leaked on X (formerly Twitter). The game will be set for a 2025 release and will be titled Grand Theft Auto 6 (GTA VI).  The trailer has already broken the record for the most views of a YouTube video in under 24 hours (as of this writing it 77.3 million), and mind you, it hasn’t even been a full 24 hours since the video was put up.

There is a lot of interest in GTA VI, especially seeing as the previous installment from over a decade ago ranks as the second best-selling video game of all time; grossing over a billion dollars in sales in the first three days of its release. Additionally, the upcoming game follows the publisher’s last major title release, Red Dead Redemption 2, in 2018 which has earned the rank of the eighth best-selling game of all time. Despite any excitement from gamers, investors have been less receptive to TTWO’s trailer as the stock is trading down 1.7% today.  Below we show the performance of the stock surrounding other debuts of Rockstar Games’ trailers and title releases going back to GTA: San Andreas in 2004 (this was the earliest example of a debut trailer for a game that we could find).

The GTA VI trailer targeted a 2025 release date for the game, which follows the formula of other recent releases with a roughly two-year lag time between a trailer and a game’s debut.  As shown, performance in the year following a trailer debut has been somewhat mixed, but TTWO has often traded higher between a Rockstar game’s first trailer and when the game was released.   So with the trailer out, investors and gamers alike will now be playing the waiting game until 2025.

The equity market (and most other parts of the financial universe) has been in rally mode for about five weeks now, and while it would be greedy to think that the S&P 500 could rally the 4% needed between now and year-end to get back to its prior highs from the start of 2022, on a total return basis, the market is knocking on the door of new all-time highs. As shown in the chart below, the total return index is within 1.1% of its prior all-time high from 1/3/22.  In addition to nearing its prior highs, the pattern of the S&P 500 looks a lot like a cup and handle which technicians consider to be a bullish formation.

For all the weakness that we’ve seen in the US Treasury market over the last couple of years, high-yield bonds have fared much better.  As shown in the chart below, the iBoxx High Yield Total Return Index, which is the underlying index of the popular ETF (HYG), came into the week just 2.5% below its prior all-time high from 12/28/21. That’s impressive in its own right, but even more noteworthy when you consider the fact that long-term Treasuries (20+ year maturities), long considered the ‘safest’ area of the fixed income sector, or all financial assets for that matter, are still down over 40% on a total return basis from their Summer 2020 peak.

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:

The First Ever Text: On December 3rd, 1992, a 22-year-old engineer named Neil Papworth used his PC to text “Merry Christmas” to his colleague Richard Jarvis, who was attending a holiday party.  Papworth was part of a group within Vodafone that was developing a “Short Message Service Centre” (SMSC). Not only was Papworth early in wishing his friend Merry Christmas, but he also likely had no idea of the importance of that message. Reflecting on it years later, he said, “It didn’t feel momentous at all. For me, it was just getting my job done on the day and ensuring that our software that we’d been developing for a good year was working OK.”  When Jarvis and his colleagues at the party received the message, they were excited it worked, but they didn’t text Papworth back.  At the time, phones could only receive texts. So, instead, they used the phone and called him.  Today, it is estimated that 23 billion text messages are sent per day, and as a result, millions of comments are likely misinterpreted by their recipients. If only people still picked up the phone and called back today!

AI & Technology

Undaunted by hurricanes, COVID and quakes, Puerto Rico ready for its tech moment (MarketWatch)
Puerto Rico hasn’t had the best fortune in recent years, hit by natural disasters, a pandemic, and more. That misfortune isn’t stopping its tech movement though. The island, historically a manufacturing hub, is increasingly being recognized for tech and is attracting major companies like Amazon, Microsoft, Oracle, and Meta Platforms. With a strong engineering talent pool, bilingual workforce, and advantageous tax incentives, Puerto Rico is overcoming infrastructure issues and natural disasters to foster a resilient tech ecosystem. Puerto Rico aims to retain and attract STEM talent, capitalizing on its unique position as a US territory with strategic location benefits. [Link]

How Your Dog or Cat Could Help Speed Up Your Health Tests (WSJ)
Medical diagnostics are being revolutionized by artificial intelligence (AI), with rapid advancements initially seen in veterinary care now informing human diagnostics. Techcyte, a Salt Lake City-area startup, has developed AI algorithms using animal data, significantly speeding up test results processing. The Mayo Clinic, among others, has adopted these algorithms, enabling faster turnaround for parasite testing and working towards AI-based cancer detection. AI in diagnostics is proving more efficient and accurate, reducing human error and fatigue. [Link]

Sports Illustrated Published Articles by Fake, AI-Generated Writers (Futurism)
Sports Illustrated has been publishing content from seemingly fictional writers with AI-generated headshots and biographies. Investigations revealed that Drew Ortiz, an author on Sports Illustrated’s site, along with others, had no online presence outside of the publication and used AI-generated images for themselves. After inquiries, Sports Illustrated’s publisher, The Arena Group, removed these authors and their content, initially denying AI involvement but later admitting to licensing content from AdVon Commerce. This situation reflects a broader trend in media, where publishers like CNET, Bankrate, and BuzzFeed have faced criticism for using AI-generated content. [Link]

The Inside Story of Microsoft’s Partnership with OpenAI (The New Yorker)
Microsoft faced a crisis when OpenAI, a key collaborator, abruptly fired its co-founder and CEO, Sam Altman. This caused turmoil within OpenAI and threatened Microsoft’s strategic partnership which was integral to its AI advancements. After intense internal discussions and employee backlash at OpenAI, Altman was reinstated as CEO following significant changes to OpenAI’s board, stabilizing the partnership with Microsoft. The New Yorker gives the full behind-the-scenes details. [Link]

A Quibi-like app called ReelShort hit record downloads and revenue this month (TechCrunch)
ReelShort, a short-video app similar to Quibi, has seen significant success with 1.9 million downloads in November and substantial revenue despite criticisms of its content quality. The app, which has aggressive marketing strategies, features episodes unlocked through ads or virtual currency. Since its August 2022 launch, it has garnered 11 million downloads and $22 million in net revenue. ReelShort’s popularity suggests a continued consumer interest in short-form, produced entertainment, competing with platforms like TikTok. [Link]

Energy & Sustainability

A first-of-its-kind geothermal project is now operational (Google)
Aiming to address climate change, a company called Fervo has set a goal to operate its data centers and office campuses on 24/7 carbon-free energy (CFE) by 2030. To achieve this, Fervo is focusing on commercializing advanced clean electricity technologies, with a particular interest in enhanced geothermal energy. Google has partnered with Fervo to develop an enhanced geothermal power project, which is now operational and supplying carbon-free electricity to their data centers in Nevada. They also recently announced a partnership with Project InnerSpace to further geothermal energy adoption. Ideally, projects like this will kickstart a movement in the power sector towards clean energy. [Link]

Tesla solar panels were going to change the world. What happened? (Financial Times)
In 2016, Tesla acquired SolarCity and unveiled a future home concept with solar roof tiles, but seven years later, this aspect of Tesla’s strategy has significantly receded. The broader solar industry, including Tesla, faces challenges like high-interest rates and supply chain issues. Tesla’s solar deployments, particularly the Solar Roof product, have underperformed against targets. Despite Elon Musk’s continued optimism, Tesla’s strategy for its solar business remains unclear. [Link]

EVs

Electric vehicles and hybrids grow to a record-high 18% of U.S. light-duty vehicle sales (EIA)
In the US, 16% of all light-duty vehicle sales came from battery EVs (BEV). Hybrid and plug-in hybrid sales contributed to bringing that figure up to a 17.7% record high. Notably, the average transaction price for BEVs decreased by 5% in the third quarter to $50,283, making them more competitively priced compared to the overall industry average for light-duty vehicles. However, BEV sales are still primarily concentrated in the luxury vehicle market, comprising 34% of total luxury vehicle sales but less than 2% in the non-luxury segment. [Link]

Biden to Limit Chinese Role in U.S. EV Market (WSJ)
An EV tax credit, part of the Inflation Reduction Act, aims to decrease reliance on Chinese suppliers by restricting the credit for EVs with battery materials from “foreign entities of concern.” The Biden Administration hopes the tax credit will encourage auto-supply chain development and cut the cord from China. Automakers are awaiting clarity on these rules, which will influence their investment and licensing decisions, particularly regarding collaborations with Chinese firms. The policy could potentially disqualify many EVs from the subsidy. [Link]

Economic Developments

The Biggest Delivery Business in the U.S. Is No Longer UPS or FedEx (WSJ)
Amazon has become the largest delivery business in the US. The company is expected to further widen this gap, with projections of delivering around 5.9 billion packages by the end of the year. This growth contrasts with the earlier skepticism from industry executives and analysts about Amazon’s potential to lead in logistics. Amazon’s strategy has included regionalizing its logistics network and launching a program for entrepreneurs to start delivery franchises. While Amazon has excelled in residential delivery, it still lacks the global coverage and pick-up and delivery capabilities of UPS and FedEx. [Link]

The McDonald’s theory of why everyone thinks the economy sucks (Silver Bulletin)
A Washington Post story suggested that customer concerns about high fast-food prices are based on misinformation, but this article argues otherwise. The price of the Big Mac has indeed increased by 14% from December 2020 to June 2023, which is slightly lower than the overall consumer price index increase. However, the rise in fast-food prices is part of a larger trend of increased spending across various consumer goods. The author highlights strategies by fast-food chains, such as introducing premium items and digital ordering, that have led to customers spending more. Consequently, these spending patterns are contributing to the public’s negative perception of the economy, as people are spending more in both real and nominal terms. [Link]

Germany chokes on its own austerity medicine (Politico)
A court ruling invalidated the German government’s strategy of using “special funds” to circumvent deficit limits. This decision has left a €20 billion gap in the budget and challenges Chancellor Olaf Scholz’s strategy to finance the government’s agenda without violating the constitutional debt brake. The situation is particularly notable given Germany’s past criticism of other European countries for similar financial practices. The ruling has raised concerns about Germany’s fiscal policies and its ability to maintain its economic commitments, including defense spending following Russia’s invasion of Ukraine. [Link]

Containing Viral Disease

How one rabid kitten triggered intensive effort to contain deadly virus (Washington Post)
An adopted kitten in Omaha, Nebraska named Stanley showed signs of illness thought to be a reaction to medication. However, Stanley soon developed severe symptoms, including seizures and breathing difficulties, leading to his death the next day. Post-mortem tests revealed that Stanley had a strain of raccoon rabies previously unobserved west of the Appalachian Mountains, sparking concern about its potential spread. Its spread could make its way into several surrounding states over five years and put millions of people at risk. After Stanley’s death, hundreds of animals in a surrounding radius were caught and vaccinated in the hope of preventing the spread of rabies, but it won’t be known until next year whether the efforts were effective. [Link]

Chinese Policy

How China is tearing down Islam (Financial Times)
China is cracking down on Islamic culture, and as such, is modifying and demolishing mosques in the country. More specifically, the policy affects almost every region and removes Arabic architectural features and replaces them with traditional Chinese designs. An analysis of satellite images of 2,312 mosques shows that about three-quarters have been either modified or destroyed since 2018. These changes are part of a broader policy of “sinicisation” aimed at assimilating non-Chinese groups and religions into what the government considers Chinese culture. This has led to a sense of loss and suppression among the Muslim community, with fears that it represents the beginning of the end of Islam in China. The actions that China is taking towards Islam highlighted in the article are part of a broader trend in the country where religions are forced to prioritize Chinese traditions and loyalty towards the state above all else. [Link]

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