This morning the Dallas Fed released its monthly reading on the region’s manufacturing sector.  The headline number was expected to fall for the second month in a row from the October high of 19.8; the highest reading since October of 2018.  While that decline came to fruition, it was an even bigger drop than what was expected as the index fell to 9.7 compared to the forecast of 11.6.  Although the index was lower, December marked the fifth month in a row with expansionary conditions.

Although the index for General Business Activity fell, the rest of the report saw much more strength.  Other than Finished Good Inventories, every index continued to show expansionary readings with many moving higher month over month. A few indices have even risen into the top decile of historical readings.

Demand appeared to have picked up in December with the index for New Orders and New Order Growth Rate both rising month over month.  While the index for New Orders is still just below its post-pandemic peak of 19.9 from October, the New Order Growth Rate has risen to its highest level since August of 2018.

Given demand has continued to rise, Dallas area manufacturers have also appeared to have increased production in a big way in December.  The Production index rose back up to 25.5, matching the pandemic high from October.  Before that, you would need to go back to August of 2018 to find as high of a reading. Additionally, the 18.3 point increase from last month was the largest move since May and June and is tied with December of 2017 for the sixth-largest monthly gain on record. Given production has increased so too has Capacity Utilization, though this index’s moves were not as dramatic as it still sits below highs from a few months ago.

While most indices of the report saw some type of pause in their moves higher in recent months, prices have been on a one-way trip higher.  Prices Paid for Raw Materials accelerated for the fifth month in a row reaching the highest level in over two years.  Expectations for prices of inputs have similarly been elevated relative to recent history as that index rose to a reading of 50 in December; the highest since May of 2018. Those price increases are flowing into the price of finished goods as the index for Prices Received rose another 12.7 points to 17.4.  Again, this was the highest reading since the summer of 2018 and the index for future expectations also reached a new high.

Wages were also on the rise in December as the index rose to 19.1. That is the highest level since right before the pandemic began in February.  Expectations on the other hand are at the highest level since March of last year.  Those increases in wages and benefits come as businesses, in general, raise employment levels.  The index for employment gained another 7.9 points moving to a two-year high of 19.6. While more people are being taken on with better compensation, the index for hours worked fell slightly in December.  Click here to view Bespoke’s premium membership options for our best research available.

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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Pandemic Stories

‘Vodka in Your Coffee Cup’: When Pandemic Drinking Goes Too Far by Alix Strauss (NYT)

The rise in alcohol consumption during the pandemic – driven by boredom, isolation, and a need to self-medicate – is leading to concerns over a new rise in alcohol abuse among demographics that don’t traditionally get a lot of attention for substance issues. [Link; soft paywall]

Dogs ease pandemic isolation for nursing home residents by Mary Esch (AP)

Nursing home residents who are isolated from family and the rest of the outside world thanks to COVID are finding relief in the form of four-legged friends who can offer companionship. [Link]

Only the world wars have rivalled covid-19 for news coverage (The Economist)

Almost half of the stories published in the New York Times and The Economist mention coronavirus in 2020, a share only rivalled by “war” during the periods of the First and Second World Wars. [Link; registration required]

In pandemic America’s tent cities, a grim future grows darker by Michelle Conlin (Reuters)

The surge in houselessness and difficulty providing relief through traditional programs means that tent cities are spreading and growing rapidly across the entire country. [Link]

Culture Wars

Why British Kids Went Back to School, and American Kids Did Not by Chris Cook (The Atlantic)

Strong unions and decentralized decision making have kept American teachers from being subject to the same risks as European teachers, while students in the UK and EU have missed little in-person instruction unlike the US. Despite objection from teachers, Europe also reached a consensus on schools…unlike the US, where policy became deeply politicized. [Link; soft paywall]

Does Affective Polarization Undermine Democratic Norms or Accountability? Maybe Not by David Broockman, Joshua Kella, and Sean Westwood (OSF Pre-Prints)

A new paper argues that polarization does not celebrate norm violations, lower political candidate quality, reduce compromise, and lead to misperception of actual conditions. Instead, “affective polarization” are generally limited to everyday life, not the political realm. [Link]

Gold Rushes

Agriculture Industry Bets on Carbon as a New Cash Crop by Jacob Bunge (WSJ)

Farmers are being paid to use their fields as carbon sinks, but there are questions about the practice that a desire to offset carbon emissions incentivizes. [Link; paywall]

Betting companies defined the year in sports business by Daniel Roberts (Yahoo!)

While sports themselves were badly impacted by COVID, sports betting businesses had an unprecedented boom that may be here for a long time to come. [Link; auto-playing video]

Covid-19 Propelled Businesses Into the Future. Ready or Not. by Greg Ip (WSJ)

E-commerce has been given a massive boost by COVID-19 in a boon to companies that moved quickly to offer a digital version of traditionally physical or in-person transactions. [Link; paywall]

Tech

Exclusive: Apple targets car production by 2024 and eyes ‘next level’ battery technology – sources by Stephen Nellis, Norihiko Shirouzu, and Paul Lienert (Reuters)

Apple’s long-rumored Project Titan continues in the dark, with the company aiming for a 2024 production date. The company is looking to build a passenger vehicle that might include “breakthrough” battery tech that would reduce cost and increase range. [Link; auto-playing video]

How Amazon Wins: By Steamrolling Rivals and Partners by Dana Mattioli (WSJ)

As the online retailer has expanded in scale, it has repeatedly entered relatively small markets and smashed competitors with its efficiency. [Link; paywall]

Taiwan’s TSMC begins hiring blitz for $12bn US plant by Cheng Ting-Fang and Lauly Li (Nikkei Asia)

The world’s largest chipmaker is building a large fabrication facility for its 5 nanometer chips in Arizona and is set to start hiring hundreds of engineers and other plant staff as it nears the start of operations. [Link]

Markets

Flash Surge in World’s Biggest ETF Linked to ‘Outlandish’ Trades (Bloomberg)

A fat finger trade in SPY led to more than 150,000 trades totaling over $50mm took less than 1 second to play out, driven by an order that ignored potentially lower prices in order to quickly fill demand. Either the choice of order or its high price are likely the result of human order. [Link; soft paywall]

A Speculative Frenzy Is Sweeping Wall Street and World Markets (Bloomberg/Yahoo!)

Stimulative policy, enormous optimism about the outlook, and the easiest financial conditions in history are fueling staggering speculative activity in the US equity markets. [Link]

SEC Adopts New Ad Rule, Allows Client Testimonials by Melanie Waddell (ThinkAdvisor)

Changes to regulations related to advertising and marketing will allow advisors to start using testimonials and endorsements from clients. [Link]

NIMBYs

George Lucas sues family and town over Marin County property rights by Andrew Chamings (SFGate)

After anti-development forces prevented George Lucas from expanding his studio, he decided to build low-income housing on the plot. The result is an eight year battle between Lucas and neighbors who don’t want lower income people living in their community. [Link]

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Have a great weekend!

In the week leading up to Christmas, large-cap equities have made a modest move lower with the S&P 500 ETF (SPY) down 0.28% over the past five days.  Meanwhile, small caps have continued to surge.  With equities overall mixed based on market cap, bullish sentiment has held steady this week.  The percentage of investors reporting as bullish in the weekly AAII survey was slightly higher coming in at 43.57%, up 0.14 percentage points from last week.  Given the reading on bullish sentiment did not change much, sentiment remains elevated relative to most readings over the past several years, though, there is not the same exuberance as back in November.

Although bullish sentiment didn’t move very far, bearish sentiment took another leg lower. The percentage of respondents reporting a pessimistic outlook for the market fell from 26.29% to 21.99%. That is the lowest reading on bearish sentiment since the first week of 2020 when it was just 0.09 percentage points lower.

The inverse moves in bullish and bearish sentiment have led the bull-bear spread to move further in favor of bulls.  The spread rose to 21.58 which is not at any sort of a new high after peaking above 30 in mid-November but remains at the high end of the past several years’ range.

Relative to the big drop in bearish sentiment, bullish sentiment’s move was tiny.  That means the percentage of investors reporting as neutral on the market picked up the losses in bearish sentiment.  34.44% of respondents reported as neutral this week, up 4.16 percentage points from last week.  Similar to bearish sentiment, that brings the reading back up to where things stood in the first couple of weeks of the year. Unlike bearish sentiment which is at the low end of its range, this reading for neutral sentiment is also much more historically normal after being muted all year.  Click here to view Bespoke’s premium membership options for our best research available.