With issues of privacy, security, and unfair market positioning surrounding a number of the FAANG stocks, plus the fact that some of them faced recent selling pressure, we were surprised last week to see that the average short interest as a percentage of float (SIPF) for the five stocks that make up FAANG (Facebook, Amazon.com, Apple, Netflix, and Alphabet) remains right near record lows.  That’s right, the average SIPF level for these five names is just 1.83%.  Perhaps even more surprising is that their average short interest level is half the average of the S&P 500 (3.67%).

Times have really changed for the FAANG stocks over the last several years.  Back in late 2012, when Facebook first went public, the average SIPF level for the FAANG stocks was around 10%.  Since then, short interest has steadily declined. October 2013 was the first time that short interest for the FAANGs dropped below the S&P 500, but it wasn’t until November of the next year that short interest stayed there and continued to decline.  The fact that short interest levels are so low for the FAANG stocks isn’t entirely surprising.  For starters, these are now among the largest market cap stocks in the world, and it is common for mega-cap stocks to have lower than average short interest levels as it takes a lot more capital to short a meaningful percentage of the company.  That being said, there certainly seems to be a shortage of skepticism regarding these names.

Please click the image below to view our May 2018 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.

It all began 106 months ago today.  After a devastating recession and financial crisis, the US economy finally hit rock bottom in June 2009, and “green shoots” began to emerge.  While the recovery has been anything but strong, it has been pretty darn consistent.  At 106 months now, beginning tomorrow, the current period will move into second place all by itself in terms of longest US economic expansions.  Not to get ahead of ourselves, but in order to match the record long expansion for the 1990s/early 2000s, the expansion would have to extend into the second half of 2019.

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.

Brave New World

You could be flirting on dating apps with paid impersonators by Chloe Rose Stuart-Ulin (Quartz)

A look inside the world of freelance virtual dating assistance, who flirt on behalf of clients on apps like Tinder; with one in three heterosexual Americans meeting their future spouse online these days, questions loom about the line between assistant and scam artist. [Link]

We’re underestimating the mind-warping potential of fake video by Brian Resnick (Vox)

Higher quality computer techniques are helping blend the line between the real and the imagined, and the implications for our society are staggering. [Link]

Amazon’s new Alexa-powered Dot encourages kids to use the word ‘please’ by Jason Del Rey (Recode)

One of the features in the new kids-and-family targeted Echo Dot encourages pint-sized users to use “please” when communicating with Alexa. [Link]

Took an ancestry DNA test? You might be a ‘genetic informant’ unleashing secrets about your relatives by Ashley May (USA Today)

Investigators in Sacramento used DNA from a crime scene to compare versus genealogical websites and identify the killer. We would not be surprised to see this end up as a Supreme Court case. [Link]

Labor Markets

High-Paying Trade Jobs Sit Empty, While High School Grads Line Up For University by Ashley Gross and Jon Marcus (NPR)

High schoolers have had the mantra “go to college” drummed into them repeatedly, but that means that many high-paying blue collar jobs are going wanting as students forego opportunities in pursuit of a college degree. [Link]

Why Working on the Railroad Comes With a $25,000 Signing Bonus by Paul Ziobro (WSJ)

Strong freight volumes, low unemployment, and a dearth of willing workers mean big incentives are being dangled infront of workers to start a career on the railroad. [Link; paywall]

The Call for Jobs for All by Matthew C. Klein (Barron’s)

A background explainer on the idea of a jobs guarantee, proposed recently by a number of Senators and backed by modern monetary theory. [Link; paywall]

Crypto

Crypto World Gains Even More Options: Five New Fundstrat Indexes by Janine Wolf (Bloomberg)

Fundstrat, an independent research shop, has introduced 5 different price indices based on the typo of crypto asset; the five indices comprise 75% of existing crypto market cap. [Link]

Bitcoin is the greatest scam in history by Bill Harris (Recode)

The founding CEO of PayPal thinks that bitcoin – and, by implication, other crypto assets – is a scam, because its only useful application is in criminal activity. [Link]

Investing

Being Short and Right Can Be Bad by Matt Levine (Bloomberg)

How do you make a put option work when the underlying can’t trade? This is the question behind Longfin, a blockchain fraud stock which has been suspended due to an SEC investigation. [Link]

Hedge fund billionaire Steve Cohen’s venture capital group is on a fintech tear by Liz Moyer (CNBC)

The venture arm of former hedge fund operator turned family office investor (as a result of an insider trading investigation) has been throwing gobs of cash at financial technology startups. [Link]

Automobiles

Ford to stop selling every car in North America but the Mustang and Focus Active by Matt Burns (Techcrunch)

Amidst an over-saturated market for sedans, Ford is discontinuing virtually all car sales in the United States to focus on trucks, SUVs, and its commercial offerings. [Link]

Electric Buses Are Hurting the Oil Industry by Jeremy Hodges (Bloomberg)

17% of China’s buses are electric, accounting for 99% of total global deployment of the technology. The result is 279,000 barrels of oil per day not used, a non-trivial and rising share of global demand. [Link; auto-playing video]

Google

Google and Facebook Likely to Benefit From Europe’s Privacy Crackdown by Sam Schechner and Nick Kostov (WSJ)

New privacy regulations in Europe could result in burdens smaller firms are unable to meet, creating a competitive advantage for larger players. [Link; paywall]

Think macro: record actions in Google Sheets to skip repetitive work by Ryan Weber (Google)

In its bid to replace Excel, Google Sheets has introduced functionality designed to replicate VBA macros which are often used as a time saving device in the Microsoft program. [Link]

Health Care

Medicare will require hospitals to post prices online by Ricardo Alkonso-Zaldivar (MSN/AP)

The government agency responsible for overseeing Medicare and Medicaid will now require hospitals to post prices online, in an effort to improve competition via greater transparency. [Link]

Student Loans

Drew Cloud Is a Well-Known Expert on Student Loans. One Problem: He’s Not Real. by Dan Bauman and Chris Quintana (The Chronicle of Higher Education)

Numerous media sources have been citing an “expert” on student loans that was actually an invented persona speaking on behalf of a student loan refinancing company. [Link]

Baseball

Mickey Mantle baseball card sells for $2.8 million at auction by Chris Perez (NYPost)

The latest in a long saga of “seriously?” prices for rare objects, a Micky Mantle baseball card has set a record for post-WW2 era cards (it’s the second-highest price paid for any card). [Link]

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Have a great Sunday!

This earnings season has been very strong by almost every measure when it comes to the numbers coming out of corporate America.  But as investors know, the ultimate gauge is how stock prices react to earnings reports.

In general, what we’ve seen this earnings season is an initial positive stock price reaction to the news followed by a large wave of selling throughout the trading day.

We measure the one-day stock price change in reaction to earnings for every company that reports quarterly numbers.  We also break that one-day price change into two parts — the initial gap that share prices experience when they open for trading following their earnings report and the change from that gap at the open of trading through the close of trading that day (open to close % change).

Below we show how much the average stock that has reported earnings this season has gapped up or down at the open by sector.  We also show how much the average stock that has reported has moved from the open to the close of trading.

For all stocks that have reported earnings this season, the average move has been a gap up of 0.40% at the open followed by decline of 0.30% from the open to the close.  This means investors are initially bidding shares up on earnings before sellers come in during the trading day.

A few sectors stand out.  First off, both Industrials and Technology have seen shares bid up at the open on earnings optimism, but they’ve sold off hard throughout the trading day.  The average Industrial stock has gapped up 0.90% at the open following earnings only to sell off 1.60% from the open to the close.  For Tech stocks that have reported, they have averaged a gap up of 0.40% and then an open to close decline of 1.20%.  For these two sectors, positive earnings news appears to have already been priced in.

Other sectors have seen their stock prices do well this earnings season.  Consumer Discretionary, Energy, and Financials have all seen initial gaps higher and continued buying throughout the trading day.  Health Care, Utilities, and Real Estate (REITs) have seen a wave of buyers come in during regular trading hours.  Utilities and Real Estate stocks that have reported have averaged gains of more than 1% from the open to the close.  We don’t view shifts out of Tech and Industrials and into Utilities and Real Estate as a very bullish signal.

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Today the BLS updated its broadest (and most useful) measure of wage growth, the quarterly employment cost index. This measure takes into account changing composition of aggregate employment and other factors that can tend to skew average hourly earnings up or down. It comes in three flavors: wages and salaries only, benefits only, and total compensation (total compensation and wages and salaries combined). Wages and salaries only are the best cash wage growth measure. The news was good. As shown in the chart below, the ECI of wages & salaries only (excluding benefits) for all private industries accelerated to the fastest YoY pace of the current economic expansion. Even after stripping out volatile incentive-paid occupations, wages keep moving higher on a YoY basis. We also chart a couple of specific industries’ ECI wages and salaries numbers. While truckers are getting huge wage bumps, a big uptick in wage growth for the hospitality sector is working itself off.

Below we show a table summarizing ECI wages and salaries growth by occupation and industry. As shown, while wage growth is varied across the different occupations and industries, QoQ annualized growth is almost always stronger than YoY growth, itself stronger than 5 year annualized growth. While Q1 was a particularly strong quarter, and likely represents much stronger wage growth than the current trend or sustainable pace, it’s very clear that wage growth is accelerating broadly and is likely to continue doing so.