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:

Cinco de Mayo: Today is Cinco de Mayo, commemorating the Mexican army’s victory over the French at the Battle of Puebla on May 5th, 1862. In 1861, Mexican President Benito Juárez temporarily suspended its debt payments to France, Britain, and Spain, which prompted an alliance of those countries that sent forces to Mexico demanding the repayment of its debts. Britain and Spain negotiated, but France, under the rule of Emperor Napoleon III, decided this would be an opportunity to establish the country in the Americas. Although outnumbered with significantly less firepower, the Mexican forces managed to defeat the French troops in the small town of Puebla. It was a major morale boost for the Mexicans, inspiring overwhelming unity and pride. Ironically, Cinco de Mayo is more widely celebrated in the US than in Mexico. The holiday celebrates Mexican culture and heritage, often with parades, music, traditional foods, and Corona!

Eastern Europe Is Richer Than Ever — And More Divided (Bloomberg)
Zakovce, a small village in Eastern Slovakia, exemplifies the dual nature of Eastern Europe’s 20-year membership in the EU. Despite significant infrastructure improvements and economic benefits like a halved unemployment rate due to about €515 billion in EU funding since 2004, there’s growing political unrest. Marian Kuffa, a local priest with conservative views, highlights how income disparities have fueled discontent, gaining influence with his stance on traditional values. This discontent has been amplified by various crises, leading to increased support for nationalist and populist groups. [Link]

California Fast-Food Chains Are Now Serving Sticker Shock (WSJ)
In California, fast-food chains have increased their menu prices following the state’s minimum wage hike for fast-food workers to $20 per hour. Prices in these establishments have risen by 10% since the wage law was negotiated, outpacing increases in other states. The industry argues that these increases are necessary to cover the higher labor costs, though this has prompted some consumers to reconsider their dining habits, opting for more budget-friendly or independent alternatives. [Link]

As it loses customers to rivals, McDonald’s shifts its focus to value (Restaurant Business)
McDonald’s is refining its strategy nationally as it faces customer losses to competitors like Burger King and Domino’s, due to more appealing value options amid inflation pressures. Ian Borden, McDonald’s CFO, emphasized the need for aggressive competitiveness in the market, dubbing it a “street fight” for customer loyalty. Despite this, MCD reported that franchisee profitability has returned to pre-pandemic levels, providing a foundation to bolster value propositions without sacrificing franchisee margins. [Link]

Tesla to lay off everyone working on Superchargers, new vehicles (Ars Technica)
Last week at Tesla was marked by turmoil as CEO Elon Musk recently dismissed key executives responsible for the Supercharger network and new vehicle development. The company’s strategic challenges are underscored by an aging vehicle lineup and a stalled product pipeline, despite its strong Supercharger infrastructure. Amidst ongoing layoffs, Musk’s stringent cost-cutting measures hint at broader operational challenges as Tesla navigates slower sales and regulatory scrutiny of its automated driving systems. [Link]

2024 Retirement, FA Confidence Survey in Charts (Financial Advisor IQ)
The Employee Benefit Research Institute’s survey indicates a cautiously optimistic outlook among workers and retirees about retirement savings, with a slight boost in confidence despite ongoing concerns about market volatility and inflation. Interest in guaranteed income options and emergency savings has increased, particularly among younger workers under 45. The survey also highlights a growing reliance on professional financial advice and a budding interest in AI-based investment tools. [Link]

Investments

Stocks Trade for 390 Minutes a Day. Increasingly, Only 10 Matter (Bloomberg)
A substantial portion of S&P 500 trades are now executed in the final 10 minutes of trading. About a third of all trades occur in this brief window, up from 27% in 2021. This concentration of trades at the close is tied to passive funds aligning with daily benchmark prices, but it raises concerns about potential price distortions and the broader impact on market dynamics. [Link]

Buffett Rules Out ‘Eye-Popping’ Returns. But Investors Aren’t Listening. (WSJ)
Warren Buffett has tempered expectations for Berkshire Hathaway’s future performance, noting that the conglomerate is unlikely to achieve “eye-popping” growth due to its size. Despite this, Berkshire’s shares have outperformed the market, with Class B shares increasing by 12% this year. This success comes as Buffett navigates the company without his long-time partner Charlie Munger, and ahead of the annual shareholders’ meeting in Omaha, dubbed “Woodstock for Capitalists.” [Link]

Give This Rich Dude $1 or The Onion Disappears Forever (WIRED)
Jeff Lawson, the co-founder of Twilio, recently acquired the satire website The Onion through his new company, Global Tetrahedron. Despite leaving Twilio after being pressured by activist investors, Lawson’s move into media will focus on The Onion’s independence from traffic-driven revenue models. He introduced a unique funding approach by asking readers for voluntary donations. With plans to explore various business models without a hard paywall, Lawson will try to preserve the essence of satire. [Link]

Environmental

Tumble in storage battery costs to boost shift to renewables, says IEA (Reuters)
The International Energy Agency (IEA) predicts a steep reduction in battery costs for energy storage, which will further accelerate the transition from fossil fuels to renewable energy. According to the IEA’s report, total capital costs for battery storage are expected to decrease by up to 40% by 2030. This cost reduction will make renewable energy sources like solar and wind, which require storage to ensure reliability, increasingly competitive against coal and gas-fired power plants. The IEA highlights that integrating solar photovoltaic systems with battery storage is already cost-effective compared to new coal plants in India, and it will soon be cheaper than new coal and gas-fired plants in China and the US, respectively. Additionally, the global energy storage market is projecting a six-fold increase in capacity by 2030, largely driven by advancements in battery technology. [Link]

Where seas are rising at alarming speed (Washington Post)
The American South is experiencing one of the fastest sea level rises on the planet, profoundly affecting coastal communities across eight states. From Texas to North Carolina, tide gauges show a significant increase in sea levels, with many areas observing a rise of over six inches since 2010. This rapid change is straining local infrastructure, elevating insurance costs, and altering daily life. Experts stress that while the focus has traditionally been on preparing for dramatic events like hurricanes, it’s the incremental impact of rising sea levels that poses a longer-term, pervasive threat to these communities. [Link]

Policy

US official urges China, Russia to declare only humans, not AI, control nuclear weapons (Reuters)
Paul Dean, a senior US arms control official, emphasized the importance of human control over nuclear weapons during an online briefing, urging China and Russia to declare a similar stance. The US, along with France and Britain, has committed to ensuring that decisions on the deployment of nuclear weapons remain strictly in human hands, promoting this as a norm of responsible behavior among the permanent members of the UN Security Council. As AI becomes a bigger force, we might have the sequel to Dr. Strangelove, but the bomb isn’t in the hands of humans this time. [Link]

Automatic emergency braking at speeds up to 90mph required under new rule (The Verge)
The US Department of Transportation has mandated that all light-duty vehicles, including passenger cars, SUVs, and pickup trucks, must be equipped with advanced automatic emergency braking (AEB) systems by 2029. This regulation aims to improve safety by enabling vehicles to brake at higher speeds and detect pedestrians at night autonomously. Although current AEB technology helps prevent low-speed collisions, it struggles with high-speed scenarios and detecting pedestrians in dark conditions. This new standard is set against a backdrop of declining traffic fatalities, with a notable reduction in deaths in 2023 compared to the previous year. [Link]

South Carolina No Longer Asking ‘Carolina Squat’ Drivers Nicely To Fix Their Dumb Trucks (Jalopnik)
South Carolina has enacted a ban on the “Carolina Squat,” a vehicle modification where the front end of a truck is lifted much higher than the rear. Initially, the state issued only warnings, but starting next month, actual fines will be imposed. Drivers will face penalties if the front fender of their truck is four inches higher than the rear. This law targets public road safety issues caused by such modifications, like impaired driver visibility and potential hazards to other road users. [Link]

A flurry of new rules from the Biden administration attempt to ban noncompetes, boost overtime pay, and increase refunds for delayed flights (Yahoo News)
The Biden administration has launched new rules designed to improve workers’ earnings and strengthen consumer protections. Key changes include raising the salary threshold for overtime pay, which will benefit workers making less than $43,888 from July 1, and automating refunds for travelers facing significant flight delays or cancellations. Furthermore, the FTC has issued a rule eliminating noncompete agreements, which could foster more business startups and raise employee earnings. Despite these potential benefits, the rule banning noncompetes has sparked lawsuits from various business groups, who argue it exceeds legal boundaries and could disadvantage US companies. [Link]

Housing & Real Estate

Built-for-Rent Construction Continues Booming (Apartment List)
Single-family homes make up two-thirds of the US housing stock, with 16.6% being rented. Built-for-rent (BFR) communities are gaining traction, where single-family homes are constructed specifically for rental purposes. In 2023, these BFR homes saw a notable increase, accounting for 9% of all single-family home starts. Such developments offer amenities typical of multifamily housing and represent a middle-ground option between renting and homeownership. As the demand for affordable homeownership increases due to soaring home prices and high-interest rates, BFRs and other single-family rentals are becoming an increasingly appealing option, particularly in the South and West where most new BFR construction is concentrated. [Link]

Education

Walmart US CEO talks inflation, self-checkout, and paying six-figures to non-college degree workers (ABC News)
Walmart discussed the company’s shift towards hiring more non-college degree workers for high-paying corporate roles. Currently, many of Walmart’s salaried managers, who can earn upwards of $400,000 annually with new stock grant rewards, started as hourly associates. Walmart is actively promoting skills certificates to foster career advancement into roles like software engineering and data science, emphasizing on-the-job training over traditional degrees. [Link]

Sports

Youth Sports: Ahead of the Curve (Sports Business Journal)
Tom Gordon, former MLB pitcher, has been deeply involved with Perfect Game (PG) since retiring from professional baseball. Initially just an events business, PG has transformed into a diverse enterprise, now projecting over $100 million in revenue this year. In the $30 billion youth sports market, baseball and softball are seeing notable increases in participation. PG events have evolved into festival-like experiences with attractions like drone shows and music, drawing massive crowds, such as 40,000 attendees at a recent Houston event. That’s pretty crazy for youth sports! [Link]

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Have a great weekend!

The S&P 500 ETF (SPY) gapped up 1% at the open this morning, so below we wanted to provide a quick summary of how the ETF has typically traded on days when it gaps up 1%+. As shown in the table below, 1%+ gaps higher on a Friday have been the second most frequent of any weekday with 71, trailing only the 80 1%+ gaps higher on Tuesday. On the 71 prior Fridays when SPY has gapped up at least 1%, its median change from the open to close was a further gain of 0.27% with positive returns 59% of the time. SPY has had the best open-to-close performance (+0.50%) after gapping up 1%+ on Wednesdays and the highest consistency of gains (67%).

As for the entire trading day, 90% of the time when SPY gaps up 1%+, it finishes higher on the day.  That may sound impressive, but the fact that there is a one in ten chance of the market giving up all of its opening rally means that gains are hardly guaranteed. The worst day of the week in terms of holding 1%+ opening gains has been on Monday as 14% of those days have erased the entire opening gap.

Looking at more recent 1%+ gaps higher, the table below lists the last ten 1%+ opening gaps higher in SPY.  Six of the last ten opening gaps have occurred on Tuesdays, but overall it has been a coin flip in terms of the market’s performance from the open to the close.  Of the five days where SPY did trade lower from the open to close, it only erased the entirety of its opening gap once (11/1/22).