Five interesting things that Hodges Capital research analysts discovered this week...

#1 October Surprise: October non-discretionary "needs" inflation (+0.2% m/m, +4.7% y/y) outpaced discretionary "wants" inflation (+0.1% m/m, +1.0% y/y). Energy prices remained steady, while food prices rose by +0.2% m/m. Grocery prices are now 28% above their pre-COVID trend, highlighting that, despite a slowdown in inflation compared to a couple of years ago, high price levels are still challenging for low-income consumers. (Piper Sandler Macro Research)

#2 Costly Insurance: A recent Bankrate report shows that the national average annual premium for full-coverage auto insurance increased by 26% in 2024, reaching $2,543, with no signs of slowing. California, Texas, and Missouri, for instance, saw premium hikes exceeding 30% in 2024, while Louisiana experienced some of the largest increases, with drivers spending an average of 6.53% of their income on car insurance compared to the national average of 3.41%. (Inszone Insurance Services)

#3 Changing Tides? Software has now outperformed semiconductors for nine consecutive days (as of Nov. 11), marking the longest streak in approximately five years, or 1,250 trading days. Heading into Q3 earnings, investor positioning for Software remained significantly underweight relative to Semis, based on early October buy-side surveys. This underweight positioning has created a tailwind as investors have re-allocated, especially post-election. Additionally, Q3 Software earnings have exceeded expectations for most companies. Unlike certain segments within Semis, Software faces less exposure to tariff headlines and geopolitical risks. (Jefferies)

#4 Rearview Mirror: Prices for both new and used cars have continued to decline gradually in Q3. The latest Cox Automotive Dealer Sentiment Index indicates cautious optimism, with a mildly improving sales environment and the industry's supply issues largely behind us. Although the Manheim Used Vehicle Value Index fell by 3.7% y/y in October, prices remain significantly elevated, at over 30% above pre-pandemic average levels. (Canaccord Genuity)

#5 Quality Leadership: Quality leadership has persisted across the market. Until a broad-based earnings recovery occurs, quality is likely to continue leading. While many have predicted small-cap stocks would outperform large-caps, focusing on quality in small caps has proven more effective than attempting to time size-based trades. Since the beginning of 2022, more S&P 600 stocks (132 small caps) have outperformed the Bloomberg Mag 7 index than S&P 500 stocks (128 stocks). (Piper Sandler)

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