Gassy Summer
With Labor Day weekend on the horizon, Americans who were on the road this summer experienced a bit of sticker shock as prices surged in late July and into early August. Through Sunday, the national average price of a gallon of gas, according to AAA, stood at $3.82 which is the second highest price for this time of year since at least 2004. The only year that the national average price was higher as of 8/27 was last year ($3.85), and the average price for this time of year has historically been $2.91. Looking at the summer driving season (Memorial Day through Labor Day), the national price has increased by 6.7% this year. While 6.7% may not sound particularly large, we would note that the median change during the summer driving season since 2004 has been a decline of 3.7%, and prices have only increased 35% of the time. In addition, this year’s increase ranks as the fourth largest trailing only 2017 (+11.8%), 2020 (+13.0%), and the 46.1% surge in 2005 due to the landfall of Hurricane Katrina in the Gulf of Mexico.
While prices this summer increased much more than normal, on a YTD basis, the increase has been right in line with the historical norm. As shown in the chart below, while the average YTD change through 8/27 has been a gain of 17.5% since 2005, this year’s increase of 19.0% is less than two percentage points more than normal. For the last four months of the year, can we expect to see the typical seasonal decline? Since 2004, the AAA national price’s median change from Labor Day through year end has been a decline of 7.5% with increases just 36% of the time. Investors looking for inflation to continue to trend lower so that interest rates might come down will certainly be hoping gas prices follow the historical script over the final four months of 2023.
Bespoke’s Morning Lineup – 8/28/23 – Snatching Defeat From the Jaws of Victory
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“Defeat is a state of mind; no one is ever defeated until defeat has been accepted as a reality.” – Bruce Lee
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After the first positive week of August, stocks are looking to close out the month on a positive note as we head into September on Friday. It’s a slow day for data today, but we’ll have a number of important reports throughout the week with Consumer Confidence, a ton of labor related reports, GDP, and the ISM Manufacturing report. It’s also the last week of August heading into Labor Day weekend, so there could be air pockets to the upside and downside throughout the week.
Well, it started out as a good day for Chinese stocks. After last week’s “15-minute rally”, Chinese stocks kicked off the week with a 5%+ surge at the open following news that the government would cut the tax on trading and limit the supply of IPOs. The point of maximum optimism was the opening print, though, and from there, the CSI 300 sold off and finished right near the lows of the day. It was still a positive day with a gain of over 1%, but as far as 1% rallies go, this was one of the more disheartening ones.
As far as 5%+ opening gaps are concerned, they don’t occur very often. Today’s was the first since July 2015 and just the seventh since 2005. Besides the one in July 2015, the other five all occurred during 2008.
The chart below shows the performance of the CSI 300 since 2005 with red dots showing each of the prior days that the CSI 300 had a 5% gap at the open. While three occurred near the lows in 2008, the others came in the middle of major legs lower. It’s also worth noting that of the seven 5%+ gaps in the CSI 300 (including today’s), four of them were followed by declines of at least 4% from the open to close.
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Bespoke’s Brunch Reads – 8/27/23
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:
Hurricane Season. On August 27th, 2011, Hurricane Irene made landfall in the United States. It caused widespread flooding, power outages, and damage along its path from the Caribbean to the northeastern U.S. Irene resulted in the deaths of dozens of people and caused billions of dollars in damage, making it one of the costliest hurricanes in U.S. history.
Technology and Innovation
Elon Musk’s Shadow Rule (The New Yorker)
Elon Musk, despite not holding a government position, does have significant influence around the world. SpaceX had been providing Ukraine with internet access, through its Starlink service. As hard as it would be for Russian forces to dismantle Starlink systems in the country, Musk had the power to do so whenever he wanted. That decision became a potentially realistic one when the Pentagon said it would not foot the steep for it. [Link]
A Draft Of TikTok’s Plan To Avoid A Ban Gives The U.S. Government Unprecedented Oversight Power (Forbes)
ByteDance, the Chinese parent company of TikTok, might have to cede control to the U.S. government in order to avoid a ban. According to report, ByteDance must agree to give the U.S. government access to internal TikTok data and control over key functions in order to keep operating in the US. The agreement would also give U.S. oversight abilities that it does not have over other platforms. [Link]
Multi-day energy storage increases grid capacity by factor of ten (pv magazine USA)
Battery startup Form Energy’s iron-air battery technology, capable of delivering 100 hours of discharge at costs competitive with conventional power plants, is well suited to help New York achieve its clean energy targets and grid reliability goals. Incorporating long-duration and multi-day storage can substantially reduce costs compared to solely relying on short-term lithium-ion batteries, with benefits both economically and environmentally. [Link]
She Didn’t Speak for 18 Years. A Computer Helped Find Her Voice (WSJ)
Significant progress is being made in brain-computer interfaces for communication. One paralyzed woman used a brain implant and algorithm to control a virtual avatar while another with Lou Gehrig’s disease communicated via text using brain signals. Issues like invasiveness and privacy are reasons for concern, but the technological advancements surely give hope to those with speech disabilities. [Link]
AI scores in the top percentile of creative thinking (The Conversation)
AI’s leap into creativity is gaining momentum as AI-generated content’s impact spans industries, exemplified by the Hollywood writers’ strike. An experiment using AI’s responses in the Torrance Tests of Creative Thinking demonstrated AI’s capacity for original thinking, even scoring in the top 1% for idea originality. Although a significant achievement, the creative potential of AI raises questions about fostering human creativity in education. [Link]
Retail and Economics
The US mall is not dying (CNN Business)
Contrary to an article featured in a Bespoke Brunch Reads from August 6th, some research suggests that malls in the US are not going extinct but rather adapting to new circumstances. The best malls in affluent areas experienced increased foot traffic in 2022, when compared to 2019. Even lower-tier malls saw an increase. Occupancy rates remained promising. The rise of e-commerce hasn’t killed malls, as Gen Z leads a revival of malls for a variety of reasons. [Link]
Car Prices Might Be Unsustainable for Buyers (WSJ)
Cars have become increasingly unaffordable over the last five years. The average American needs 42 weeks of income to pay off a new car, which is up from 33 weeks pre-pandemic. Even used cars have seen a price hike of more than 30% over that time. Higher interest rates have compounded the issue, as average new and used car loan rates sit at 9.5% and 13.7%, respectively. Automakers have capitalized, but the trends might not be sustainable if resistance to higher prices continues. [Link]
U.S. Consumers Are Showing Signs of Stress, Retailers Say (NYT)
U.S. consumers are becoming more cautious about their spending due to eroding savings, inflation, and the resumption of student loan payments. Retailer reports are indicating a shift in consumer behavior with increased credit card delinquencies and a preference for discount retailers. Seasonal shopping events like back-to-school and Halloween will be good measures of further shifts. [Link]
As China’s economy slows, the buck stops with leader Xi Jinping (Washington Post)
As the curtain falls on the era of growth, China’s 2023 economic scene is gloomier. Property markets are stagnating, graduates struggle for jobs, and President Xi’s promises of prosperity have wavered due to debts and market shifts. The economic slowdown challenges the implicit agreement between the Communist Party and citizens: loyalty for an improved future. Foreign companies are being impacted too, becoming cautious about China due to regulatory crackdowns and geopolitical factors. [Link]
Investment and Finance
This Fidelity manager has crushed the S&P 500 since 1989—here’s his advice for investors (CNBC)
Joel Tillinghast’s mutual fund, Fidelity Low-Priced Stock, has delivered an annualized total return of about 13% compared to the 9% return of its benchmark Russell 2000 index. His strategy involves seeking small and mid-cap companies with strong earnings, quality management, and long-term growth potential whose stocks are undervalued. Tillinghast emphasizes patience, a long-term view, and an understanding of price and value. [Link]
Why the Stock Market’s Summer Doldrums Are Not a Problem (NYT)
August has been a tough month for the stock market after July’s rally. As the saying goes, what goes up, must come down. But that’s not necessarily a bad thing, as market history shows that rapid gains are temporary and are usually followed by falls or crashes. So, the current trend can be viewed as a welcomed relief and a signal of a more sustainable upward trend. Despite rising rates and inflation, cautious optimism remains. [Link]
Entertainment
Convicted con man Billy McFarland announces the return of 2017’s disastrous Fyre Festival — with tickets up to $8K (New York Post)
After the viral Netflix documentary recounting the failed music festival due to disastrous execution and misleading marketing promoted by Billy McFarland and rapper Ja Rule, McFarland announced via YouTube that Fyre Festival II is in the works. It is scheduled to take place in the Caribbean at the end of 2024. Can we count on the convicted con artist to deliver this time around? [Link]
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Have a great weekend!
The Bespoke Report – 8/25/23 – Exit Stage Left
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Bespoke’s Morning Lineup – 8/25/23 – Toto, Come Back
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“Some people without brains do an awful lot of talking, don’t you think?” – Frank Baum, The Wonderful Wizard of Oz
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There’s less than 90 minutes until Powell speaks in Jackson Hole, and before anyone leaps to the assumption that the above quote is directed at certain monetary authorities or any of the commentators who will dissect every syllable spoken or even imagined in Jackson Hole today and this weekend… there could be some truth to that, but we’d also note that today marks 84 years since The Wizard of Oz first hit the silver screen, and after the August we’ve had, we could only wish that it was as easy as clicking our heels to get back to the rally of July.
Although it was primarily one stock driving the move yesterday, in early trading it looked like the S&P 500 was going to build on Wednesday’s gain and string together a rally that would take it back above its 50-day moving average (DMA). It didn’t take long for the sellers to step in and ruin the party, though, leaving the S&P 500 with another outside reversal day.
There are a number of different ways to screen for an outside reversal day, but for our purposes we looked at days where the SPDR S&P 500 ETF (SPY) had an intraday range of more than 1%, its intraday high was higher than the prior day’s high, the intraday low was below the prior day’s low, and it closed in the bottom quintile of its intraday range (near the lows). Based on those criteria, yesterday was the fourth outside reversal in the last month.
While outside reversal days like Thursday aren’t particularly uncommon, you rarely see four within a one-month span (21 trading days). Since SPY started trading in 1993, there have only been four other periods with as many or more, with the most recent being late last April.
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The Bespoke 50 Growth Stocks — 8/24/23
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 twenty changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. With Bespoke Premium, you’ll receive a number of daily market updates from us along with our weekly newsletter and a portion of our investor tools. With Bespoke Institutional, you’ll receive everything that’s included with Premium plus additional daily macro analysis and more stock-specific research.
To see all 50 stocks that currently make up the Bespoke 50, simply start a two-week trial to Bespoke Premium or Bespoke Institutional.
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.
Chart of the Day: Did AI Save the Market?
Bespoke’s Morning Lineup – 8/24/23 – Irony
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“Life is fragile. We’re not guaranteed a tomorrow so give it everything you’ve got.” – Tim Cook
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There’s a positive mood across the global equity universe as stocks in Asia had a positive day, Europe is trading higher, and US futures are indicating a gain of about 0.6% at the opening bell, half of which can be attributed to Nvidia’s (NVDA) 9% pre-market gain. Commodities are mixed but skewed to the downside, and both the dollar and US Treasury yields are slightly higher. It’s a busy morning for economic data with jobless claims, Chicago Fed National Activity Index, and Durable Goods at 8:30 and Kansas City Fed Manufacturing at 11:00.
The August pullback in equities has had the desired effect on sentiment as AAII’s weekly sentiment survey showed bullish sentiment declining for the third week in a row falling from 35.9% down to 32.3%. That’s the lowest level since May 31st, and represents a nearly 20 percentage point decline from its recent peak of 51.4% on 7/19.
It’s hard to think about a more fitting statement from Tim Cook regarding his predecessor who resigned on this day twelve years ago. After taking a leave of absence in January 2011 due to his battle with pancreatic cancer, Jobs formally stepped down as CEO on 8/24/11. The news was made public after the close, and shares fell sharply in the after-hours session before recovering. The following morning AAPL dropped by just about 3% as analysts came out and defended the stock, and by the end of the day it was down less than 1%. At first glance, the fact that the stock had such a muted reaction on news of the departure of one of the all-time greatest tech visionaries may seem counterintuitive, but Jobs had already given up most of his day-to-day responsibilities. While no one could fill the shoes of a leader like Jobs, Tim Cook had (and continues) proved that he was more than capable of leading the company. Just 41 days after formally leaving Apple, Steve Jobs passed away on 10/5/11.
The chart below shows the market cap of Apple since Steve Jobs returned to the company as CEO in 1997 through today. Its market cap under Jobs is shown in blue, while Cook’s tenure is shown in green. One of the most ironic aspects of the chart is that the vast majority of Apple’s market cap has accrued under Cook’s tenure. When Jobs stepped down, Apple’s market cap was just under $348 billion compared to $2.8 billion today. Put differently, more than 87% of the company’s current market cap came during the Cook years compared to less than 13% under Jobs. Even crazier is the fact that in the 13 trading days that followed its peak on 7/31 through the close a week ago on 8/17, Apple lost more in market cap ($369 billion) than the company had accrued from the time it was founded through Jobs’ ultimate departure.
Obviously, this is a major oversimplification of the impact Steve Jobs had on Apple as well as the entire US economy, bit it also illustrates the importance of compounding, and Steve Jobs left Tim Cook with more than a substantial base to build off.
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Chart of the Day: Holding Out for Jackson Hole
Bespoke’s Morning Lineup – 8/23/23 – Ending Before it Even Starts
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“Things always seem to end before they start.” – Lou Reed
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A few hours ago, it appeared as though we’d be seeing a respectable rally to start the trading day, but much of the gains have faded and there’s still nearly an hour left before the opening bell. The pullback this morning has come in tandem with a sell-off in European stocks which are well of their highs of the day, and one catalyst has been a batch of mixed PMI readings for August. While activity in the manufacturing sector did not shrink by as much as expected, Eurozone services sector activity unexpectedly contracted. In Asia, most major indices were positive during the session, but China was a notable laggard as the CSI 300 fell 1.64% taking its MTD decline to just under 8%.
Weakness in China has really acted as a drag on the performance of Emerging Markets as an asset class as the country accounts for 30% of the entire index, but closer to home, Mexico, which has a much smaller representation in the index, has been moving in the exact opposite direction. The chart below shows the performance of the iShares China (MCHI) and Mexico (EWW) ETFs over the last ten years. While the two ETFs performed similarly with each other from August 2013 through August 2015, they really started to diverge from late 2015 through the onset of COVID, and as concerns over supply chains intensified during the pandemic, Mexico’s renaissance began. Despite periods in the last ten years where the performance of the two ETFs couldn’t have been more divergent, through yesterday’s close their performances was very similar; the MSCI China ETF (MCHI) was down 2.49% over the last ten years, while Mexico (EWW) was down 4.33%. On the chart, Mexico looks like the reflection of China much as the way a mountain range reflects on a lake.
The chart below shows the relative strength of EWW relative to MCHI over the last decade, and this chart further illustrates the roller coaster of Mexico relative to China. From late 2013 right through the onset of COVID, China steadily outperformed Mexico, but with the onset of COVID, the trend reversed abruptly, and in the span of three years has erased seven years of underperformance.
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