The Iowa Electronic Markets (IEM) is a platform that allows people to wager real money on the outcome of various political elections.  Instead of simply asking people their views using a poll, the IEM tracks where people are actually putting their money.  The chart below shows the odds (since the start of the year) of the Democratic candidate emerging victorious in November with an overlay of the S&P 500.

We have been providing regular updates to this chart for some time now, and up until recently there was a strong similarity between the performance of the S&P 500 and how the democratic candidate (presumably Hillary Clinton) was faring in the polls.  When the odds of the Democratic candidate increased, the market rallied and vice versa.  Over the last two weeks, though, the contract for the Democratic candidate winning in November has not only come under pressure, but it has outright crashed from a high of 74.0% on 5/10 to just 56.1% through yesterday.  When the Democratic contract had its initial decline on 5/11, we figured it was a one-day blip, but since then it has gone on to make new lows.  Before reading too much into the decline in the IEM, we would note that other betting markets haven’t seen nearly as sharp of a move as IEM (although they have all been moving in the same direction), so the IEM is certainly the outlier right now.  That being said, the outlook for Republican candidate Donald Trump has shown considerable improvement in recent days, and Trump has actually moved into the lead by 0.2 points in the Real Clear Politics average of general election polls.

What, if any, are the stock market implications of the changes in the election betting markets?  Without getting into any sort of political debate, we would note that from strictly a historical perspective, equity market performance has been better under Democratic Presidents versus Republican Presidents.  In addition, there has been an argument made that Clinton would represent a more predictable choice for the economy and markets over Trump.  Obviously, there are exceptions to every rule, but the equity market’s rally has definitely run out of steam as the outcome of this fall’s election has become less certain.  Thankfully for market bulls, the correlation between the two has not been nearly as strong in the last two weeks as it was from the start of the year through early May.

Although Energy has received much of the headlines over the last year, bricks and mortar retail has been embroiled in a bear market of its own that is only just recently starting to come up to the surface.  The chart below shows the performance of the 33 stocks that make up the S&P 500 Retailing Industry Group over the last year.  In order to show how each individual component has been driving the performance of the group, the bubbles for each stock represent the market cap of each component, so that large bubbles indicate a large weighting in the index while small bubbles represent companies that have less ‘clout’ in the performance of the group.

As we have pointed out repeatedly in the last several months, the performance of Amazon (AMZN) has masked a lot of the overall weakness within the group.  With a market cap of $332 billion, AMZN represents 31% of the entire group’s market cap.  In other words, as goes AMZN, so goes the rest of the group, and with the stock trading up 63% in the last year, that has helped the index’s overall performance.  The next best-performing component of the S&P 500 Retail Industry Group is Ulta Salon (ULTA), which has rallied 37%, but because its market cap is just $13 billion it has barely had an impact on the overall performance of the group.  Number three on the list of the group’s top performers is Home Depot (HD), which has rallied nearly 18%.  As shown in the chart, HD is another stock with a large weighting in the group (second largest in the group).  In fact, with AMZN, those two stocks account for 46% of the entire group’s market cap.  As long as these two stalwarts can continue their run, the performance of the group should hold up well.

At the other end of the spectrum, the list of worst performers reads like a who’s who of stores that are present in shopping malls across the country.  Macy’s (M) and Nordstrom’s (JWN) have always been considered anchor tenants of successful shopping malls across the country, and both stocks are down over 40% in the last year.  Looking at how the names in this chart are grouped, names towards the right (worst performers) are all companies whose goods can be easily shipped and shopped for online, while names towards the left have little physical presence or sell services or goods that generally aren’t purchased online.

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.

Sentiment Check

Stop Worrying About the Stock Market Crashing! by Mark Hulbert (Barron’s)

An overview of the incredibly dour outlook on the US stock market from many sectors of the investment landscape. [Link]

Fund Managers Sour on Dividend Boom as U.S. Payouts Climb Towards New Record by Mike Bird (WSJ)

Despite reports of a “chase for yield” in the equity market via outperformance of high dividend stocks, investors are growing increasingly uneasy with the dearth of capex from companies. [Link, paywall]

Government Data

I’m suing the US government for its data on who’s entering the country by David Yanofsky (Quartz)

The US government maintains a database of all entries into the United States by foreign nationals, but doesn’t want to give up the details. [Link]

The best free economic data resource in the world is getting a facelift in June by Myles Udland (Business Insider)

We are unabashedly huge fans of the St. Louis Fed’s Federal Reserve Economic Database aka FRED, and glad to see it’s going to get more features and a snappier look. [Link]

Historically Miscellaneous

The Crash of EgyptAir 990 by William Langewiesche (The Atlantic)

Note: this article first appeared in the November 2001 issue of The Atlantic. An interesting overview of the 1999 crash of an Egyptian airliner that has new relevance given the disappearance this week of a Paris-Cairo flight. [Link]

Work It by Alexandra Schwartz (The New Yorker)

Schwartz asks a simple and annoying question that has vexed many modern twenty-somethings trying to balance busy social lives, work schedules, limited budgets, and the new social morays of online dating, and ends up on a comprehensive review of where dating came from. [Link]

Chart The Rise And Fall Of America’s Most-Eaten Foods by Adele Peters (FactCoExist)

Americans are eating more oil, less lard. More lettuce, less potatoes. And a whole lot more kale. [Link]

True, Unbelievably

House-trained bison with ‘great personality’ finds a new home by Charles Scudder (The Dallas Morning News)

A Texas rancher is the proud owner of a bison that actually lives inside her home, but she’s been forced to give her up. Strange and endearing. [Link]

This Is How You Move a 390-Pound Gorilla Across the Country by Nick Stockton (Wired)

It turns out that genetically diverse gorillas are in high demand. Here’s the story of how one got moved from Santa Barbara to Colorado. [Link]

For World’s Newest Scrabble Stars, SHORT Tops SHORTER by Drew Hinshaw and Joe Parkinson (WSJ)

Upstart Nigeria has taken the Scrabble world by storm, using counter-intuitive and mathematically-driven strategies to win championships. [Link, Paywall]

Uncommon Commodities

A Cheese Glut Is Overtaking America by Kelsey Gee and Julie Wenau (WSJ)

A strong dollar has hurt cheese exports just as production has taken off, leaving three pounds of cultured milk fat for every man, woman and child to consume. [Link, paywall]

Egg prices drop to record lows by Ashley Harding (News 4 Jax)

Wholesale egg prices are down to an almost impossible to believe 71 cents per dozen, reversing the circumstances seen last year during the bird flu outbreak which crushed production. [Link]

The Commodity That No One Knows About But Everybody Wants to Buy by Thomas Biesheuvel and Jessie Riseborough (Bloomberg)

An ingredient in new blends of steel is getting a lot of attention (and capital) as investors jockey for position in one of the few mines located around the world. [Link; includes auto-playing video]

Retail

Landlords are starting to freak out about the problems in retail by Wolf Richter (Business Insider)

With e-commerce gobbling up share of US retail sales, the profitability of renting to traditional retail businesses is coming into question. [Link]

E-Commerce Drives Surge in U.S. Warehouse Rental Prices by Paul Page (WSJ)

While malls are getting eyed suspiciously as prime candidates to lose economic relevance with the fall in traditional retail, wearhouses are flat-out booming. [Link, paywall]

Vineyard Vines explores stake sale: sources by Lauren Hirsch (Reuters)

Despite brutal conditions for actual stores, casuals brand Vineyard Vines (who are the ones responsible for the Bespoke logo ties frequently sported by Co-Founder Paul Hickey and Macro Strategist George Pearkes during their television appearances) is considering an IPO. [Link]

Trying Things Differently

Tech Startups Come Up With Some Creative Definitions for ‘Profitable’ by Ellen Huet (Bloomberg)

A trip through the strange, and frankly confusing, definition of the term “profit” as applied to a bevy of recent start-ups. [Link]

This $5 Billion Software Company Has No Sales Staff by Dina Bass (Bloomberg)

Atlassian, a project management software company, doesn’t employ sales people at all; this is quite a novel approach to the software business. [Link; includes auto-playing video]

Rift Between Labor and Environmentalists Threatens Democratic Turnout Plan by Jonathan Martin (NYT)

With the right trying to shore up its traditional coalition (white, working class, and southern voters along with pro-business and conservative bodies politic) the left faces its own challenges uniting disparate groups of voters across the Democratic party’s coalition. [Link]

Tech Frontiers

Bringing 911 Service to the Developing World With Smartphones and Motorcycles by Polly Mosendz (Bloomberg)

A unique combination of available resources (sidecar motorbikes) and tech (mobile networks) are allowing for new solutions to old problems, like the how to provide medical services in remote areas of developing countries. [Link]

Metered taxis target Uber drivers in Sandton shootout by Travis Carlyle & Steven Tau (The Citizen)

We knew many American taxi drivers hated Uber (just take a yellow cab in NYC during a busy time and you’ll hear plenty about it) but the inflow of competitors in South Africa has driven some to violence. [Link]

Social Tech

17 Rules of Etiquette for On-Demand Apps by Kevin Sintumuang (WSJ)

What are the right (and wrong) times to use new apps (which are also new forms of labor utilization) like Postmates, TaskRabbit, Shyp, or Glamsquad? [Link, paywall]

Venmo is turning our friends into petty jerks by Kari Paul (Quartz)

An overview of the new opportunities for penny-pinching that popular peer-to-peer payments app Venmo can create. [Link]

Interest Rates

Investors’ Flight From Negative Rates Flattens Yield Curve by Min Zeng and Ben Eisen (WSJ)

What are the causes and implications of a smaller spread between longer-term Treasuries and shorter-term Treasuries? [Link, paywall]

Interim Report and Consultation May 2016 (The Alternative Reference Rates Committee)

A committee organized by the Federal Reserve has made a preliminary suggestion about weening the world of derivatives off the now mostly defunct LIBOR reference rate. [Link; 35 page PDF]