Weekly Research Briefing: Odd and Bizarre

The Magnificent-7 stocks took the brunt of the hit on Friday, along with tech hardware and semiconductor stocks. Year-to-date through Friday, the Roundhill Magnificent Seven ETF is up just 0.8%, while the S&P 500 excluding the Mag-7 ETF is up 9.9%, ahead of the cap-weighted S&P 500's 7.9% (chart). The “493,” i.e., the rest of the S&P 500 stocks collectively, is holding up.

@NickTimiraos: The U.S. economy added 172,000 jobs in May and the unemployment rate held at 4.3%.

There were large upward revisions to March and April, raising the three- and six-month hiring averages to 188,000 and 92,000, respectively.

“Meanwhile, economic activity remains strong. Consumer spending is robust, partly supported by wealthy households’ investment gains. Although higher energy prices have weighed on lower-income households, the US economy as a whole has weathered the shock so far.”

“I’m increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability and appropriately balance both sides of the Fed’s dual mandate”

S&P Dow Jones Indices said Thursday it won't fast-track the inclusion of SpaceX and this year's other giant IPOs into the S&P 500.

Rules governing the benchmark stock index require newly listed companies to trade on an exchange for at least a year and to show a track record of liquidity and profitability before they become eligible for inclusion. The committee that oversees the index had considered waiving those requirements to speed the inclusion of SpaceX, OpenAI and other so-called megacap companies that could go public as soon as this year.

The group said Thursday it had decided against making those changes, meaning the newly listed companies must wait at least 12 months before inclusion.

The committee said in a news release that the current methodology “provides substantial market coverage and sector balance” despite the trade-offs “between strict adherence to these eligibility requirements and broad representativeness.”

Many investors had expected the index committee to change the rules to account for the newly minted megacaps.

• “The reason these companies are going public now is because they have to they have capital needs that are so voracious that it is not prudent for them to try to do one hundred percent of it in the private market and not have a public currency. It’s just not prudent. And that’s why I think you’re going to see a bunch of these companies go public because they actually need the capital.”
• Regarding Alphabet/Google: “This one of the largest, if not the largest secondary fall on equity offering ever...I think you’re going to see more companies issue equity because capital is available. You want to be cautious about this. If you get it wrong, if you totally rely on debt and you get it wrong, you will really regret it if you wind up having a downside scenario that’s tougher than you expected.”

The American Association of Individual Investors (AAII) survey, which tracks bullish versus bearish sentiment on the stock market, remains well below its 30-year average. In fact, as of the latest weekly reading, survey respondents with bearish views (37%) outnumbered respondents with bullish views (36%).

WHEN A TWO PCT DOWN DAY PRESENTS ITSELF ON THE BACK OF A TEN PCT QTR

On Friday, June 5th, the S&P experienced a 2.64% Down day which occurred on the back of a 11.03% Qtr (13 wks).
Since 1950, I see 34 prior occasions in which a Down 2% Day occurred on the back of a trailing double digit gain over the prior 13wks.
The forward performance in those 34 cases was, on avg, of the Bullish friendly variety with the 10% moves, 13 wks later, 12-0 to the positive.
The six color highlighted cases which occurred in Junes played out particularly well for the Bulls.

Fastenal continued with strong May daily sales, growing 14.8% (+20 bps from FX), up from 14.3% y/y in May. On a m/m basis, daily sales grew by 4.6%, beating Fastenal’s benchmark of 4.0% for May. Our conversation with the company was constructive, with growth coming broadly across the business, with sequential growth in all end markets with the exception of non-residential.

Host Hotels & Resorts – Key takes from Dan Politzer following meetings at REITweek: Management was optimistic on lodging fundamentals, and hasn’t felt this good about its customer/RevPAR outlook since 2015, when it was early in the lodging cycle. We could envision upside to 2Q RevPAR guidance for ~4.4% (i.e., similar to 1Q), as April was +4.4%. For 2Q-4Q26, HST could continue to benefit from short-term booking strength.

Speaking on the earnings call, CEO Ron Vachris said unrest in the Middle East disrupted fuel markets and drove more consumers to Costco’s lower-cost gasoline offerings.

“The result was record-breaking volumes all 3, 4-week fiscal periods of the quarter set successive all-time company volume sales records with the final 5 weeks of the quarter, becoming our top 5 volume weeks ever,” said Vachris.

Vachris added that elevated fuel prices encouraged many members to visit Costco gas stations for the first time. According to him, shoppers who regularly purchase fuel at Costco locations also tend to spend more inside warehouses, making gasoline operations an important driver of long-term customer loyalty.

“As enterprises become more and more successful, the cost of deploying AI agents from all perspectives, from efficiency perspective, from performance perspective, and hard dollar perspective, it is becoming a topic of discussion and topic of concern because these line items were never in anybody’s budget, right? Here’s a simple example. If you take a very conservative estimate of an employee you have trained to leverage AI agents and spends $200 a week through tokens, if you multiply that, it’s about $10,000 a year if you take a 50-week. For 40,000 employees, that’s about $400 million. For 90,000 employees, you’re talking about $900 million. That line item never existed a few years back.” - Cisco AMD CIO Hasmukh Ranjan

Uber CEO: "We blew through our AI budget in a quarter, for the whole year essentially. And it is forcing us to adjust. We are going to meter headcount increases because, to the extent that my engineers are getting much more efficient, their throughput is increasing. They're becoming superhuman in terms of their output. One, there's a cost to that, and it's a significant cost. And at the same time, we're kind of metering the increase in headcount."

Uber Technologies Inc. has set usage caps on some artificial intelligence-powered tools used by its staff, a move meant to manage costs after the company blew through its AI budget earlier this year.

The rideshare giant is limiting all employees to $1,500 in monthly token spending per AI coding tool, an Uber spokesperson said in response to a Bloomberg News inquiry. That means spending on one tool doesn’t have a bearing on the budget for another. The limits, which have been instituted in recent months, only apply to agentic coding software such as Cursor or Anthropic PBC’s Claude Code.

Every employee has a dashboard where they can track their usage across various tools. The company has also implemented a process by which individuals can seek permission to exceed their normal cap.

“We think this is all a pretty straightforward way to responsibly encourage agentic AI adoption and experimentation at scale across the company,” the spokesperson said.

A new style of architecture is rising in the sprawling suburbs of the Sonoran Desert: windowless data centers that hum 24 hours a day and guzzle as much electricity as a midsize city.

As Microsoft and other tech giants expand their footprints in one of the nation’s largest data-center markets, a high-stakes battle is unfolding over how to pay for the massive power-grid upgrades needed to drive the AI revolution.

Arizona Public Service, the state’s largest utility, sits at the center of the firestorm. APS is proposing a 45% electricity-rate increase for “extra-large energy users,” primarily data centers, and a roughly 14.5% increase for residential customers.

Nearly everyone is unhappy.

Shark Tank impresario Kevin O’Leary wanted to build data centers on 40,000 acres in rural Box Elder County, Utah, a parcel of land more than twice the size of Manhattan. A Deseret News-Hinckley Institute of Politics poll found most Utah voters opposed the plan, with almost 85% of Democrats, a majority of independents and fewer than half of Republicans in favor. They have deluged Utah’s Republican governor, Spencer Cox, with letters, rallied at the state Capitol with signs reminding him that sharks aren’t welcome in the state, and filed to put the project to a public vote…

This isn’t about local zoning. Rather, it’s the latest battle in the war that might determine the future of artificial intelligence. And that war is about public acceptance, not technology. A year ago, this was all an abstract worry, but the data-center revolt is the war’s first real battle – one in which the industry’s leaders seem to be trying to lose…

AI might unleash miracles of productivity, cure cancer, or make energy too cheap to meter. Its advocates have promised all that and much more. But it can’t do any of those things – or at least it can’t do them in the United States - if the public rejects the technology. That’s exactly what it’s doing right now, as the public’s acceptance of new data center construction has dropped a staggering 49% in just the last nine months and industry-backed candidates floundered in Tuesday’s elections despite massive spending.

The second question is why is Berkshire Hathaway suddenly, after all these years, interested in Google, and at only a slight discount to its all-time high price? Does it really just come down to the fact that Buffett is no longer making investment decisions, and Greg Abel, his successor as CEO, is?

In fact, you can make the case that Abel is actually just replaying Buffett’s strategy, only this time Berkshire Hathaway is See’s Candies, and Google is BNSF. At the end of last quarter Berkshire Hathaway had $373 billion in cash, and $25 billion in free cash flow in 2025. How many companies could actually employ that cash in a way that generated a high rate of return?

It’s hard to imagine a better option than Google. The company is not only investing in AI, but has optionality in terms of outcomes: its Services business benefits from the investment, it is in contention at the model layer with Gemini, and it can sell capacity to the frontier labs. Moreover, that capacity has a sustainable cost advantage because of TPUs, which means that in a world where compute becomes a commodity — as hard as that is to imagine right now — Google is the hyperscaler that is poised to make the most profit.

It is worth noting that $10 billion is a relatively small amount of money to both companies. To that end, perhaps the primary utility is as a signaling mechanism. On Google’s side, the signal is that the expected demand is actually far greater than anyone thinks, and that the company is ready and willing to fund supply using all means at its disposal, including equity; for them Berkshire Hathaway’s investment is an endorsement of this view and a validation of the wisdom of the investment. And, on the flip side, if the signal is correct, then Berkshire Hathaway is getting a deal and putting its cash flow machines to work building the future.

At peak weight loss, those taking GLP-1 medications can drop a clothing size every month. Jeans, bras and athleisure wear are often the first items replaced. Then come tops and dresses, as well as adjustments to rings, bracelets and shoe sizing. Retailers from Levi Strauss to Costco Wholesale and Walmart are working to understand the shift.

The returns trend is particularly acute in larger sizes. Returns for medium, large and extra-large items jumped the most, according to Impact Analytics. “As you lose weight or you have a shift, you’re, like, ‘OK, I need to buy medium and large to see what fits better,’ ” said Agrawal.

Lisa Primm, a 57-year-old retired social worker, has spent around two years on Zepbound, for a while dropping a clothing size every few weeks. The Ypsilanti, Mich., resident is down 115 pounds—now a four instead of a 22—but isn’t always confident that smaller dimensions will fit.

“I still order size medium and six or eight,” she said. “Then I end up returning for a smaller size.”

@charliebilello: Miami, Florida is the strongest buyer's market in America with home sellers outnumbering homebuyers by 148%.

“The housing crisis has become acute enough that from policymakers’ standpoint, they realize that how we produce homes has to change,” said Arica Young, director for housing access and affordability at the Lincoln Institute of Land Policy. “You look at Japan — or Sweden, where something like 80% of homes are produced in a factory — and we’re still building homes the way we did 100 years ago.”

Supporters say factory-built housing offers many of the same advantages that transformed other industries: faster production, lower labor needs and greater economies of scale. Homes can be completed up to 50% faster because construction isn’t slowed by weather, while manufacturers can operate with fewer workers at a time when the industry in the US faces labor shortages and a looming wave of retirements. Large producers also benefit from bulk purchasing; Clayton Homes, for example, builds as many as 35,000 homes a year, allowing it to negotiate better pricing than a builder who builds 75 homes a year.

Advocates also argue that factory production can improve quality. A contractor working long days across multiple job sites isn’t going to square the corner perfectly every time, but a factory can.

The approach is more common outside the US. Eighty-four percent of Swedish homes have prefabricated elements, according to Global Construction Review. In the Netherlands, it’s 20%, while in Japan it’s 15%. In the US, only 5% of housing has any significant prefabrication, according to the report.

Sweden’s embrace of factory-built housing was born partly of necessity: Long winters, limited daylight and heavy snowfall made traditional on-site construction inefficient, pushing more of the building process indoors.

Quietly, and with surprisingly little fanfare from the rest of the world, Australia is pioneering a revolution in home renewables and battery use, proving what is possible with the right policies. The country was already one of the global leaders in domestic solar power, with panels on one in three homes. It also remains, however, a major contributor to the climate crisis through its vast fossil fuel exports. But it is batteries that are giving Australia a new burst of speed.

Nearly 60% of the household-scale battery capacity installed across almost 200 countries – every nation except China - this financial year will be in the southern continent, according to a recent analysis. Since July, about 415,000 have been connected. It is roughly one unit for every 25 Australian homes.

Industrial-scale batteries are being built nearly as quickly, with Australia (population: 27 million) trailing only China (1.4 billion) and the US (350 million) in new capacity after connections more than doubled last year. The increase in battery usage big and small is starting to bring down the cost of electricity from the nation’s spindly power grid, which includes more than 40,000km (24,850 miles) of transmission lines and cables between tropical far-north Queensland and the southern island state of Tasmania…

Previously, power prices would rocket in the evenings as gas-fired power – the most expensive form of energy generation on the Australian grid – was turned on to meet peak demand. With solar and wind now providing nearly half the electricity, and coal-fired power plants gradually closing, gas has been used to fill gaps after the sun sets.

But batteries are increasingly taking over that role. Total gas-fired generation was 24% lower across three months this summer compared with the year before. Tennant Reed, the climate change and energy director with the Australian Industry Group, representing more than 60,000 businesses, says it has “completely changed how electricity prices are formed”.

“The role of gas used to be in the evening to meet the evening peak and that came at a cost, because gas is not a cheap fuel. But more and more, every day, it is batteries that are surging into the market at 6pm,” he says. “Gas will still play a backup role but, on average, batteries are not as expensive as gas peakers and they are pushing those [gas plants] out even as electricity demand increases.”

Most cars lose value the moment they leave a dealer’s lot. The RAV4 hybrid gains it.

Used, late-model versions of the RAV4 hybrid often list for more than their original sticker prices, even with thousands of miles on their odometers. In some cases, they cost more than a new 2026 model fresh from the Toyota Motor Corp. factory.

CarMax recently advertised a 2024 RAV4 Hybrid XSE with 29,000 miles for $46,998, which is higher than that trim’s original $38,735 sticker price.

The price inversion seems to defy a natural law of used-car economics. But it illustrates some of the most powerful forces driving the US auto market this year.

The Iran war sent gas prices surging, with the national average for regular well above $4 per gallon. Some car buyers have responded by snapping up used electric vehicles, which often sell at a steep discount from their original price. Others who are either unwilling or unable to go fully electric have turned to hybrids, which pair an electric motor with a gas-burning engine. Long considered a niche product in the US, they’re now highly coveted.

And for the moment at least, there aren’t enough new hybrid RAV4s to go around.