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:

‘It’s all gone’: CAR-T therapy forces autoimmune diseases into remission (Nature)
CAR-T-cell therapy, a groundbreaking approach initially used for cancer treatment, has shown promising results in treating autoimmune disorders. In a recent study, 15 participants with autoimmune conditions experienced significant improvement, remaining disease-free or nearly so after the treatment. This therapy involves engineering a patient’s T cells to produce proteins called chimeric antigen receptors (CARs), which target and destroy B cells responsible for the autoimmune response. [Link]

Inhaled SARS-CoV-2 vaccine for single-dose dry powder aerosol immunization (Nature)
Scientists have developed a new type of COVID-19 vaccine that you can inhale as a dry powder instead of getting as a shot. This vaccine is designed to work after just one dose, and it targets the lungs to give a strong immune response, not just in the bloodstream but also in the respiratory system. The vaccine can also adapt to different strains of the virus, such as the original and Omicron variants, making it a promising tool for fighting COVID-19 and possibly other similar viruses. [Link]

Economic Trends

Digesting inflation (Briefing Book)
Despite recent disinflation, consumer sentiment remains negative, potentially due to the cumulative effect of significant price increases over the past three years. Even though annual inflation eased to 3.2% this year, the overall increase in prices over the last three years was 18.6%. The University of Michigan’s consumer sentiment index remains low, similar to levels during the Great Recession, despite improvements in inflation and gas prices, as well as a seemingly lower risk of recession. [Link]

The ID.4 Could Be Volkswagen’s First EV Made With U.S. Union Labor (Heatmap News)
UAW president Shawn Fain aims to aims to organize non-union auto workers, starting with Volkswagen’s Chattanooga, Tennessee plant where over 30% of workers have signed union cards. The Chattanooga plant, VW’s only US factory, has been accused of lower pay and poor working conditions. Previous unionization attempts failed in 2014 and 2019. Potential unionization at Tesla’s US factories was also mentioned. This development comes after UAW secured significant raises and benefits with major automakers earlier this year. [Link]

Lending and Saving

Gen X’s Retirement Problem (RIA Intel)
Gen X is looking at a retirement savings issue, as nearly half of non-retired Gen Xers (aged 43 to 58) have not started retirement planning, with 61% expressing doubt about achieving their dream retirement. This group anticipates needing $1.1 million for a comfortable retirement but expects to have only about $661,013 saved, creating a savings gap of $451,170, which is larger than that of Millennials and Baby Boomers. Contributing to this issue is Gen X’s allocation of 32% of their retirement assets to cash, driven by a fear of loss and a lack of investment knowledge. This points out the need for financial literacy and knowledge for effectively saving for retirement. Check our “Get Invested” slides that point out the benefits of long-term investing in the stock market! [Link]

Elon Musk told lenders they would not lose money on Twitter deal (Financial Times)
Elon Musk assured the banks who lent him $13bn for his Twitter buyout, now rebranded as X, that they would not incur losses (would they have lent to him if he promised them losses), despite the company’s value falling sharply post-acquisition. However, the lenders, including major banks like Morgan Stanley and Bank of America, face potentially significant losses if they sell the debt, with market investors showing reluctance to buy X’s bonds and loans. The banks have kept the debt on their balance sheets, hoping for an improvement in X’s performance after cost-cutting measures. [Link]

Crime

Crime in 2023: Murder Plummeted, Violent and Property Crime Likely Fell Nationally (Jeff-alytics)
Challenging the common perception that crime is on the rise in the US, this article discusses crime’s decline in 2023. Based on data from the FBI, murders have decreased 12.7%, with declines in 73% of over 175 cities analyzed. Now, that doesn’t mean there aren’t outlier cities that have experienced a rise in crime, nor does it mean the level of violence is close to acceptable. Other violent crimes also saw significant drop-offs YoY, with motor vehicle theft up 10%. Violent crime is also down across the board between urban, suburban, and rural counties. Ideally, this news provides a hopeful outlook that violent crime can continue to trend in the right direction. [Link]

Artificial Intelligence

News Publishers See Google’s AI Search Tool as a Traffic-Destroying Nightmare (WSJ)
The Atlantic is concerned about Google’s integration of AI into its search engine, fearing it could significantly reduce the magazine’s web traffic. About 40% of The Atlantic’s traffic comes from Google searches, and a model suggests that AI-powered searches could answer 75% of user queries directly, bypassing external links to the magazine. Google is testing an AI search product called “Search Generative Experience” with 10 million users. This shift highlights the risks for media outlets relying on tech companies for visibility, especially as AI technology could directly provide answers, reducing the need for users to visit the original content sources. [Link]

Enforcing Laws & Regulations

US agency takes first step to mandate anti-drunk driving technology (Reuters)
U.S. auto safety regulators have initiated steps to mandate carmakers to incorporate technology that prevents intoxicated drivers from starting their vehicles. This move follows a congressional directive in 2021, aiming to reduce over 10,000 annual road deaths caused by impaired driving. Various technologies are being considered, including breath or touch-based sensors that detect the presence of alcohol and cameras that monitor eye movements. However, the NHTSA needs to ensure the reliability of these technologies and their public acceptance, as even a 99.9% accuracy rate could result in a significant number of false positives. [Link]

Federal Regulators Seek to Force Starbucks to Reopen 23 Stores (NYT)
Federal labor regulators have accused Starbucks of illegally closing 23 stores as a tactic to suppress union organizing among its employees, with at least seven of these stores having unionized. The issue is set for a hearing with an administrative judge next summer, unless settled earlier by Starbucks. The company has faced over 100 complaints and numerous rulings against it for similar issues. The National Labor Relations Board is seeking to reopen these stores and compensate affected employees. [Link]

Creative Combinations

Doritos nacho cheese liquor sounds like a stunt, but it’s actually good (Washington Post)
This unusual spirit was born out of curiosity when the CEO of Empirical Spirits, experimenting with distillation, decided to use actual Doritos as the flavor source. Initially kept as a novelty item for friends and family, the spirit evoked strong, nostalgic reactions and was eventually presented to Frito-Lay. Despite its unconventional nature, the product is seen as a creative exploration in the spirits industry, recommended for use in cocktails like margaritas and Bloody Marys. [Link]

Competitive Markets

Kirkland & Ellis: is it party over for the world’s most profitable law firm? (Financial Times)
Kirkland & Ellis, a highly profitable law firm known for its work with private equity, has developed a culture and business model similar to a hedge fund or investment bank, with aggressive tactics and high earnings for partners. However, it faces new challenges as interest rates rise and private equity deals decline, affecting its co-investing perks and overall business. Additionally, Kirkland’s dominant position and practices have come under scrutiny from industry bodies and competitors, with rivals adopting similar strategies and poaching its business. [Link]

Give a Gift

Thank your Amazon driver with a $5 gift at no extra cost (ABC4 Utah)
Amazon has launched a holiday initiative where customers can show appreciation to their delivery drivers through the website or app, or even using Alexa by saying “Alexa, thank my driver.” The first 2 million expressions of gratitude will include a $5 gift from Amazon to the driver, at no cost to the customer. This “Thank My Driver” program, which began in 2022, has been a year-round initiative, with top-thanked drivers from the previous year receiving $10,000 from Amazon. Happy holidays! [Link]

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Have a great weekend!

At the start of 2022, the seven largest S&P 500 stocks by market cap (which have begun to colloquially be called the Magnificent Seven) possessed a combined market cap of $11.78 trillion.  However, severe losses throughout 2022 meant that by the end of the year these stocks were down 47.7% on average.  In terms of the combined market cap, that dropped the total down to just $6.9 trillion.  In 2023, those same seven stocks have averaged a gain of 106.6%.  While not all of these stocks have fully recovered—for example, Telsa (TSLA), Alphabet (GOOGL), and Meta (META) all have lower market caps than at the start of 2022—the strong performance this year on the whole has meant the combined market cap has made a round trip.  Now back to square one, what’s next?

Both the NYSE FAANG+ Index and Renaissance IPO ETF (IPO) have put in place fresh 52-week highs in the past couple of days, however, zooming out, those fresh highs are on different planets. The NYSE FAANG+ index—comprised of many mega cap Tech stocks—is not only at a 52-week high, but it’s trading at record highs.  Since the pre-COVID market high in February 2020, the FANG+ group is now up 120.1%.  As for the IPO ETF, this week’s 52-week high only leaves the group at the highest levels since April 2022. Contrary to the all-time high for FAANG+, IPO is still down 51.7% from its February 2021 high and is up a meager 4.7% since pre-COVID.  As you can see below, these two traded closely inline with each other in the early days of the post-COVID rally, but FANG+ has left IPO in the dust since the start of 2022.

With just two weekends left to shop before Christmas, US consumers have to be feeling a little more flush than they were just a couple months ago.  Back in October, the stock market was in a 10%+ drawdown and interest rates looked like they might never stop going up.  Less than two months later, though, the S&P 500 Total Return index is suddenly trading at all-time highs as Treasury yields have plummeted.

Maybe just as important for that “wealth effect” feeling is the huge drop in gas prices that we’ve seen since late September.  Back on September 17th, AAA’s national average gas price reading (the cost of a gallon of regular unleaded) hit a 52-week high of $3.88.  In the three months since then, there has hardly been a day when gas prices haven’t gone down, and just yesterday the price/gallon ticked down to $3.087.  That drop took gas prices below the low of $3.096 seen last December 22nd to their lowest levels in more than two and a half years dating back to 6/24/21.

With the stock market at new highs again and gas prices suddenly approaching a “2-handle,” Santa may have a little more room in his gift sack this year!

More and more equity indices are hitting fresh record highs with the S&P 500 within 1.5% of doing the same. Understandably on these moves, investor sentiment has gotten a further boost.  Per the latest AAII Investor Sentiment Survey, 51.3% of investors reported as bullish this week. And keep in mind, due to the timing of the survey, that would not have fully captured any investor response to yesterday’s FOMC.  That is the highest and first reading above 50% since July 20th of this year when bulls were only 0.1 percentage points higher.  Outside of that week, it would be the highest bullish sentiment reading since April 2022.

Given the new high in bulls, bears have been nowhere to be found. A meager 19.3% of respondents reported as bearish this week. That surpasses the recent low of 19.6% from just two weeks ago for the lowest amount since the first week of January 2018 when only 15.56% of responses were bearish.

The overwhelmingly bullish sentiment can also be observed through the bull-bear spread. Currently, the share of bulls outnumber bears by 32 percentage points. That is the widest margin in favor of bulls since April 2021. Looked at another way, that is 2.1 standard deviations above the historical average of the spread meaning sentiment is extremely extended..

The cheery sentiment on the part of investors certainly means there is a warm and fuzzy feeling during this holiday season, but we would note that sentiment is historically a contrarian indicator. In other words, opposite to what investors are feeling, extremely bullish sentiment readings have historically been followed by more lackluster returns.

Economic data this morning broadly came in healthier than expected, including weekly jobless claims. Initial claims were expected to go unchanged at 220K.  While that previous week’s reading was revised up to 221K, this week’s print fell all the way down to 202K. That is the lowest reading on jobless claims since the week of October 14th and September 16th before that. In all, that makes for one of the lowest readings on claims since January of last year.

Before seasonal adjustment, claims are largely following the usual seasonal pattern having been trending higher since the early fall.  Currently at 248.3K, unadjusted claims are running at the lowest level for the comparable week of the year since 1969.

Continuing claims have gotten much more elevated than initial claims over the past few months. Currently totaling 1.876 million, continuing claims have risen meaningfully from the low of 1.658 million put in place just three months ago. However, the consistent pace of increases over that span (every week from September 16th through the first week of November saw a week over week increase) has slowed, having been more choppy in the past month.  In fact, at 1.876 million, the current reading is still almost 50K below the recent high of 1.925 million set in mid-November.