Ahead of Wednesday’s CPI, the New York Fed’s Survey of Consumer Expectations (SCE) was released earlier this week and showed a continuation of the trend where consumer inflation expectations have been falling.  Over the next 12 months, the Fed’s survey showed that the median expected rate of inflation fell from 4.07% down to 3.83%.  While still above its historical average of 3.4%, consumer expectations for inflation over the next year are down to the lowest level since April 2021.  Over a longer time horizon, inflation expectations haven’t fallen nearly as fast, but they didn’t rise anywhere near as much as short-term expectations either.  In the June survey, the median expected rate of inflation over the next three years fell from 2.98% down to 2.95%.  While that reading barely budged, we would note that current expectations for inflation over the next three years are slightly below the long-term average.  Unlike the FOMC, which ditched the term transitory 18 months ago, consumers have remained on team transitory.

One issue which has the potential to push inflation higher is how consumers expect their incomes to change over time. In this month’s survey, the median expected rate of earnings growth increased from 2.80% up to 2.98% which is right around the high end of its range from the last two years.  As shown in the chart below, while this series has tested the 3% level multiple times, it hasn’t been able to bust through it.  As it pertains to inflation, that’s a good thing, because if consumers expect their incomes to increase, they’re probably also less likely to push back on higher prices.  At the same time, the fact that this reading has settled into a new higher range relative to its long-term average suggests that getting back down to and staying at levels of inflation that prevailed before COVID may prove to be difficult.

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Small-caps have caught a bid over the last few days with the Russell 2,000 ETF (IWM) rallying more than 3% since last Thursday’s close.  Over the same time frame, the large-cap S&P 500 is up just 0.3%.

While large-cap indices have recently traded to 52-week highs, small-caps are still well below 2023 highs made back in Q1.  As shown below, though, IWM is currently attempting to break above the top end of the sideways range it has been in over the last month.  If it can do that, the highs from earlier in the year will come into sight.

The Russell 2,000 (IWM) chart looks pretty interesting over a multi-year time frame.  As shown below, the pre-COVID high made in early 2020 has acted as strong support over the past year.  While IWM fell sharply during the mini-banking crisis this March, it stopped going down once it reached this key support level, and then it traded sideways and consolidated throughout much of April and May.  Going forward, it appears that the Russell has built a strong base over the past year to springboard off of if the bull market for US equities can continue.

A chart that always captures our attention is the one below that shows Apple’s (AAPL) market cap versus the combined market cap of all of the stocks in the small-cap Russell 2,000.  Prior to COVID, Apple’s market cap wasn’t even close to the $2+ trillion market cap of the Russell 2,000.  Since late 2021, though, the two have been battling it out.  After its huge gain in Q2, Apple is currently in the lead at $2.96 trillion, but the Russell isn’t too far behind at $2.81 trillion.

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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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Markets

Wall Street Soothsayers Have Rarely Been So Bewildered About What’s Next (Yahoo)

After most Wall Street strategists got the first half of 2023 wrong, they are deeply divided about what will happen in the second half.  Look on the bright side; while just about all of them got the first half wrong, at least half of them will be right about the second half. [link]

How Tom Brady’s Crypto Ambitions Collided With Reality (New York Times)

Celebrities and superstars like Tom Brady are feeling the effects of the crypto crash almost a year after the downturn. Many celebrities agreed to endorsement deals with various crypto sites and promoted the use of cryptocurrencies and crypto exchanges without conducting proper due diligence. As a result, some are finding themselves named as defendants in lawsuits alleging they misled investors about digital assets. [link]

Government

After Days of Destruction, Macron Blames a Familiar Bogeyman: Video Games (NPR)

After the death of a teenager by police during a traffic stop in June, France has seen riots damaging an estimated $1.1 billion of assets. French president Emmanuel Macron argues that social media and video games have fueled violence and vandalism in response to the death. Politicians have pointed to video games as the cause for increased violence, but studies have refuted this claim. [link]

TSA to Expand Its Facial Recognition Program to Over 400 Airports (Fast Company)

Over the next several years, over 400 airports in the United States will have a facial recognition system to identify travelers when going through security. TSA has conducted a pilot program across 25 airports testing its controversial biometrics technology and have found a 97% effectivity rate and increased efficiency for security wait times. Big Brother is watching! [link]

Commercial-Scale Wind Farm Off New Jersey Coast Approved (New York Times)

13 nautical miles off the coast of Atlantic City, New Jersey is the new home to a 98-turbine wind farm called Ocean Wind 1. This project is the 3^rd commercial-scale wind farm approved under the Biden administration and is one step closer to the administration’s goal of generating 30,000 megawatts from offshore wind turbines by 2030. [link]

Intelligence

Here’s When We Hit Our Physical and Mental Peaks (WSJ)

Various researchers explored when humans reach their peaks for physical and mental tasks. For physical tasks that require speed, power, and high oxygen consumption (sprinting), humans peak in their mid-20s whereas physical tasks that are endurance or low-impact (marathons), we peak in their 40s or 50s. For most mental tasks, we peak around their 50s except for quick recall and high processing tasks, where we peak at 18 or their early 20s. [link]

ChatGPT Drops About 10% in Traffic as the Novelty Wears Off (Similarweb)

ChatGPT saw its first month of declining growth since its rise in popularity in 2022. Worldwide visitors dropped roughly 10%, unique visitors dropped 5.7%, and time spent on the website dropped 8.5%. Other AI chatbots followed this trend and saw declines in the month of June as well. [link]

What AI Can Do With a Toolbox…Getting Started With Code Interpreter (One Useful Thing)

OpenAI’s newest feature to the Chat-GPT chatbot is named Code Interpreter and gives Chat-GPT the ability to upload and download information as well as write and execute coding programs. This feature will only be available to Chat-GPT plus subscribers. Read the article to see how a user with a PhD performed advanced data analysis and made a meme using Code Interpreter. [link]

Economy

America’s Retirees Are Investing More Like 30-Year-Olds (WSJ)

After a horrible year for 60-40 portfolios, older Americans are breaking away from the conventional investment strategy, opting for dividend-paying stocks instead. Vanguard and Fidelity report significant increases in the inclusion of stocks in retirement portfolios. Stocks are preferred due to higher returns compared to bonds, which are struggling to keep up with inflation. [link]

Who’s Not Working? Behind the Full-Time Caregivers Leaving the Workforce (Minneapolis FED)

Many adults who are unemployed cite caregiving as the primary reason for a lack of employment. Most caregivers are caring for children, and most are females. Some full-time caregivers are able to work while also fulfilling their caretaking duties, but it is very difficult because young children need constant attention and care resulting in the caretaker leaving their occupation. [link]

Americans Have Quit Quitting Their Jobs (WSJ)

The job market is showing signs of cooling as Americans are staying put in their current jobs after the hiring frenzy during the COVID-19 pandemic. Employees point to increased wages, extra benefits, and uncertain economic conditions as reasons to remain at their current job. [link]

Science & Technology

Scientists See Early Universe in Slow-Motion for First Time (BBC)

Researchers in Australia examined quasars, the brightest objects in the universe, and concluded that the universe is expanding and has been since 1 billion years after the Big Bang. Their findings confirmed the expectation of Einstein’s general theory of relativity regarding the distant universe ‘running much slower than the present day.’ [link]

Sleep Deprivation May Dull Benefits of Exercise on Cognition (Neuroscience News)

University College London researchers studied the impact of inadequate sleep on cognitive abilities in adults aged 50 and above. They discovered that individuals in their 50s and 60s who slept less than 6 hours but exercised had similar cognitive declines as those who slept more than 6 hours but didn’t exercise. However, for adults over 70, lack of sleep showed no distinction between those who exercised and those who didn’t. [link]

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