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:
This is Jeopardy!  On September 10th, 1984, legendary host Alex Trebek made his debut on the TV game show Jeopardy! He hosted the show for an astounding 36 years. With his distinctive voice, poise, and humor, he became an iconic presence for viewers worldwide, making the show a cultural phenomenon. Beyond hosting the show, his battle with cancer inspired many.  After 36 years with just one host, the show has had two ‘permanent’ hosts (plus many guest hosts) in just the last two years.

National Security and Global Relations

Chinese Gate-Crashers at U.S. Bases Spark Espionage Concerns (WSJ)
“Gate-crashers” is the new name for Chinese nationals, often posing as tourists, who access US military bases and sites without proper authorization. The number of these considered espionage attempts has risen significantly in recent years as gate-crashers have accessed missile ranges, rocket-launch sites, Trump’s Mar-a-Lago estate, and multiple military bases. Concerns have grown amid rising tensions between the U.S. and China, and Congress is considering legislation to address the issue. [Link]

A short history of ‘India’ versus ‘Bharat’ (The India Fix)
The Indian government has communicated, through a dinner invitation, that it wants to change the name of the country to “Bharat.” “India” is said to be an English word, while “Bharat” in Hindi. The idea has sparked a debate over linguistic and national identity, an on and off phenomenon in the country through its history. Various groups have supported different names such as “Bharat” and “Hindustan” that are often linked to political and cultural ideologies. “India,” though, has gained international recognition after 200 years of use, making any official renaming a complex issue. [Link]

Technology and Innovation

Scientists grow whole model of human embryo, without sperm or egg (BBC News)
Scientists at the Weizmann Institute have developed an entity that closely resembles an early human embryo using stem cells, without the use of sperm, eggs, or a womb. This “embryo model” mimics a 14-day-old embryo and could provide an ethical way to study the earliest moments of human development and help our understanding of development, organ formation, genetic diseases, and more. [Link]

How valuable is the UK’s AI industry? Here’s one way to not find out (Financial Times)
Global AI Ecosystem, an open-source AI knowledge platform identified over 8,900 UK companies involved in AI-related activities. It highlighted the expansive scope of AI in various industries, including unexpected ones like postal services, loudspeaker makers, and political data consultants, which are counted as part of the UK’s AI ecosystem. The article questions the methodology used in the report, especially the broad definition of AI’s role in different businesses. [Link]

Money Is Pouring Into AI. Skeptics Say It’s a ‘Grift Shift.’ (Institutional Investor)
Applied Digital, a company that recently rebranded itself and shifted focus from crypto to AI services, saw its stock soar after announcing cloud hosting deals worth hundreds of millions of dollars with unnamed AI customers. Some short-sellers are raising concerns about the legitimacy and sustainability of such companies, noting unclear AI claims and overvaluation. While AI is a hot topic in the market, there are questions about whether it can deliver on its promises and whether some companies might be exploiting the AI hype for financial gains. [Link]

If Earth were an exoplanet, JWST would know there’s an intelligent civilization here (Phys.org)
The James Webb Space Telescope (JWST) could potentially detect signs of life or advanced civilizations on exoplanets by analyzing their atmospheres. The study used real observations of Earth’s atmosphere to simulate that of an Earth-like exoplanet (a planet outside the solar system), taking into account the noise and lower resolutions expected in JWST observations many lightyears away. The results indicate that JWST could identify various molecules suggestive of life on exoplanets within 50 light-years of Earth. The question remains: are there other intelligent civilizations out there? [Link]

Pandemic Impact

New report shows young people’s mental health improved during lockdown (NIHR School for Public Health Research)
Contrary to the majority of already published research, a report from the southwest of England shows that COVID lockdowns led to a more positive perception of school, with improved teacher-student relationships. Many reported enjoying school more than they did before the pandemic, perhaps having taken it for granted before the lockdown. Anxiety levels decreased during lockdown, particularly for those who felt less connected to school previously and those at a higher risk of anxiety before the pandemic.  Our take?  Maybe it’s just that they liked school more because they didn’t have to go! [Link]

Sports

A record 73 million Americans plan to bet on the NFL this season, survey says (CNBC)
73 million projected bettors this season is up big from last season’s 46 million. The survey indicates that 19% of American adults plan on placing bets on NFL games which represents a 56% increase from last season. The growth in sports gambling and the ability to bet on mobile devices have contributed to this trend after the Supreme Court allowed states to legalize sports betting in 2018. The Kansas City Chiefs are once again the favorites to win the Super Bowl, but bettors were likely disappointed after their Week 1 loss to the Lions on Thursday to open the season. Hopefully none of them are as confidence as this guy, who got a tattoo saying they would go undefeated. [Link]

The Orioles Are a Different Type of World Series Contender (Sports Illustrated)
The Baltimore Orioles, known for their style of play emphasizing good hitting with runners in scoring position and taking the extra base, are challenging conventional baseball wisdom. They are succeeding with a different approach, scoring runs despite being 17th in home runs. The team has embraced a more traditional style of play that focuses on situational hitting, base running, and playing faster, which is enabled by MLB’s new rules aimed at speeding up the game. Statistics suggest the Orioles could be serious World Series contenders. [Link]

Economic and Financial Trends

Banking industry faces ‘significant downside risks’: FDIC chair (Yahoo Finance)
FDIC Chair Martin Gruenberg has warned that the US banking industry faces significant downside risks from inflation and high interest rates, which could weaken profitability and credit quality. Overall, deposits declined for the fifth quarter in a row, putting pressure on banks to raise their funding costs to retain account holders. Gruenberg also expressed concerns about a weakening market for commercial real estate, as banks are major lenders to commercial property owners across the US. [Link]

Bankruptcies spiked in August — the post-COVID rebound ‘is becoming a reality’ (MarketWatch)
Consumer bankruptcies in the US have increased in August, indicating growing financial distress for many individuals. An 18% increase in August compared to the previous year marks the 13th consecutive month of rising bankruptcies. Factors contributing to this trend include rising interest rates, inflation, high credit card debt levels, and an  increase in car loan delinquencies. The resumption of federal student loan payments in October is expected to further impact consumer finances. [Link]

Walmart Cuts Starting Pay for Some New Hires (WSJ)
Walmart has adjusted its wage structure for new hourly workers, resulting in most new hires earning lower starting wages than in previous months. This move suggests that the tight labor market, which led to wage increases and added benefits, is easing. Walmart claims the change allows employees to move between work groups without pay impacts and enables them to learn new skills to advance in the company. This adjustment is part of a broader trend as retailers seek to reduce costs ahead of potential consumer weakness later in the year. [Link]

How Large Are Inflation Revisions? The Difficulty of Monitoring Prices in Real Time – Liberty Street Economics (Liberty Street Economics)
Inflation estimates can change significantly over time. The Personal Consumption Expenditures (PCE) price index highlights examples like the global financial crisis where inflation estimates change dramatically over subsequent data releases. The analysis underscores the significant uncertainty in measuring inflation in real time, which poses challenges for policymakers, analysts, and investors when assessing inflation trends and their implications. [Link]

The Problem With Economic Data Is Getting Worse (WSJ)
Economic data has always been subject to revisions, but in the post-pandemic period, the process of compiling information that goes into these reports has become even more difficult, making them subject to potentially larger revisions down the road. The monthly Job Openings and Labor Turnover Survey was one indicator cited in the article where the response rate to the survey sent out by the BLS is now just 32% compared to a 65%+ response rate prior to the pandemic. [Link]

Is economics changing its mind about administrative burdens? (Don Moynihan)
This article discusses “ordeals” or “ordeal mechanisms” as a means of targeting limited resources in public policy. Ordeals are the deadweight costs individuals face when trying to qualify for a transfer or benefit, and they are assumed to deter those who don’t truly need the services. However, some research challenges this assumption, suggesting that, n some cases, ordeals can exclude people who genuinely need help, particularly those with poor health or lower education who struggle more with administrative burdens. [Link]

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Although the S&P 500 has dropped in the past week, sentiment has surged with the latest survey from the American Association of Individual Investors (AAII) showing 42.2% of respondents reporting as bullish.  That is up 9.1 percentage points from the previous week. While not large enough to earn any long standing superlatives, it marks the largest one week jump in bullish sentiment since July 20th when it increased 10.4 percentage points and indicates a significant increase in bullish sentiment.

Bearish sentiment in turn was lower at 29.6%. However, the weekly decline was much smaller at only 4.9 percentage points.  Although the jump in bullish sentiment did not borrow heavily from bears, the 4.9 percentage point drop was the largest one week decline since early June.

Additionally, the drop in bearish sentiment was enough to lift the bull-bear spread back into positive territory.  That follows two straight weeks of negative readings.  While not as elevated as the late spring and early summer, at these levels, the bull-bear spread is indicating more bullish sentiment than has been observed for much of the past year and a half.

Using the latest AAII data in combination with the findings from the sentiment surveys from Investors Intelligence and the NAAIM Exposure Index, our weekly sentiment composite indicates that investors hold slightly more optimism than has been the historical norm as the index is slightly positive.  That compares to negative readings the prior two weeks and extremely bullish readings as recently as the second half of July.

In last night’s Closer, we included a look at this composite with the addition of another sentiment indicator: the TD Ameritrade Investor Movement Index.

In last night’s Closer, we discussed a couple of recent releases of alternative housing data sets including the latest delinquency data from Black Knight and housing inventory numbers from Realtor.com. Zeroing on the latter, Realtor.com’s August inventory data showed only 585K active listings nationally after seasonal adjustment. Inventories have been drawn upon for seven months in a row, resulting in the lowest level since June 2022.  On the bright side, August did also see a seasonally unusual uptick in new listings, but that only puts a small dent in what are historically low inventories.

Using state level data aggregated by region, the multi-month drawdown in inventories has been observed throughout the country. The South has tended to have the highest quantity of homes on the market while the opposite applies to the Northeast. In fact, whereas other regions have generally seen inventories rise off of their lowest levels reached in late 2021, the Northeast is only slightly above its series low.

Similar to aggregate inventory levels, median days on market are well off their record lows early last year but have begun to roll over. Currently, median days on market is at 53 days, which is well below the pre-pandemic range.

Given the continued low supply, prices have swung higher with median prices at the highest level since last July both in terms of total price and price per square foot.  Rising at a high single digit month over month annualized pace, August also saw the most rapid appreciation since June of last year.

Breaking down home prices by geography, the West has the highest median home price in the country, but those prices have been relatively stagnant since early 2022.  The Northeast, on the other hand, has consistently had the second highest prices in the country and prices have been steadily rising. In fact, prior to seasonal adjustment, prices in the Northeast have risen 11% YoY compared to the next highest of 8.8% YoY in the Midwest and low single digit growth in the South and West.  For more in-depth coverage of housing and the economy, make sure to subscribe to our Closer feed.

The latest update of jobless claims was broadly positive with both initial and continuing claims moving lower by more than expected. Although initial claims were revised up by 1K to 229K last week, this week’s reading  fell down to 216K. That means claims have broken down out of the past several months range, notching the lowest levels since the end of January.

Before seasonal adjustment, claims are even more impressively low at 190K. That marks the third week in a row below 200K, however, that is still above the comparable readings for the same weeks of the year in 2018, 2019, and 2022. Additionally, as we show in the second chart below, the current week of the year has historically been the one to see claims put in their annual low meaning from a seasonal perspective, claims will face headwinds from here on out.

Switching over to seasonally adjusted continuing claims, like initial claims the latest reading is back down to the low end of the recent range. Claims have been fluctuating around 1.7 million over the past couple of months, but at 1.679 million this week, continuing claims are tied with the week of July 15th for the lowest reading since January 21st.

In the large-cap Russell 1,000, there are more than 18,800 individual analyst ratings, meaning the average stock in the roughly 1,000 member index has more than 18 analyst recommendations.  It’s widely known that there are way more “buy” ratings than “sell” or “hold” ratings, but to put a number to it, right now 54.5% of all analyst ratings in the Russell 1,000 are “buy” ratings.  (A “buy” rating includes terms like “outperform” or “overweight” that some firms prefer to use.)

Today we wanted to provide you with a list of the current stocks in the Russell 1,000 that have the highest percentage of “buy” ratings.  These could be considered the most loved stocks by Wall Street analysts.  (To be included on the list below, the stock needed to have at least five analyst ratings.)

Starting at the top, there are nine stocks that have 100% buy ratings, and the name with the most number of buys is Alexandria Real Estate (ARE) at eleven.  WillScot Mobile (WSC), Royalty Pharma (RPRX), Liberty Media Sirius XM (LSXMA), Kirby (KEX), Curtiss-Wright (CW), Churchill Downs (CHDN), Service Corp (SCI), and Howard Hughes (HHH) are the eight other stocks with 100% buy ratings.  The remaining eleven stocks shown have at least 93% buy ratings, and the most notable are two mega-caps with $1+ trillion market caps: Amazon (AMZN) and NVIDIA (NVDA).  At the moment, 61 of 64 analyst ratings for Amazon (AMZN) are buys, while 59 of 63 ratings for NVIDIA (NVDA) are buys.

NVIDIA (NVDA) has already surged 232% in 2023, so it’s pretty remarkable that analysts are still this bullish on the name.  It may be hard to believe, but the average analyst price target for NVDA has moved up to $638/share.  NVDA’s current share price is 26.6% below that price target.  The average stock in the Russell is only 14% below its consensus price target, so analysts expect more gains for NVDA than they do for the average name in the index.

Remember, from a contrarian’s perspective, a stock with an extremely high percentage of buy ratings may be a name to avoid.  After all, once you get to 100%, there’s no more room for analysts to get more bullish!