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

#1 Getting High: The S&P 500 now has a record 50 companies with an Enterprise Value to Sales ratio exceeding 10X. For historical context, before 2014, there were never more than 21 companies with this metric. While this may suggest that the market—particularly large-cap stocks—is overvalued, other factors should be considered. The composition of the S&P 500 has shifted toward high-growth technology companies, and overall profit margins remain at historically robust levels.

#2 Uncle Sam on a Coin: Stablecoins are gaining support. Simply put, a stablecoin is a type of cryptocurrency designed to maintain a stable value by pegging its worth to a reserve asset, such as a fiat currency like the U.S. dollar or a commodity. Stablecoins align with President Trump’s broader goals of fostering economic growth and maintaining U.S. financial leadership globally. Potential benefits of a policy shift include regulatory clarity, easier transfers, lower costs, an extended dominance of the U.S. dollar, and increased financial sector innovation.

#3 DeepSeek: This past week, there was significant market discussion about the Chinese company DeepSeek’s introduction of a low-cost AI product. This news has revived a term from deep within economic theory that many may be unfamiliar with: the Jevons Paradox. In economics, the Jevons Paradox occurs when technological advancements improve resource efficiency, reducing the amount needed for a single application. However, as the cost of using the resource declines, overall demand increases, ultimately leading to higher total consumption. In 1865, English economist William Stanley Jevons observed that increased coal-use efficiency led to greater overall coal consumption across industries. He argued that, contrary to common intuition, technological progress alone cannot be relied upon to reduce fuel consumption.

#4 More Bad News for California: Television station KTLA reports that State Farm, California’s largest insurer, has asked the state’s Department of Insurance to approve an emergency rate hike averaging 22%, citing a “dire” financial situation following the deadly and destructive L.A. County wildfires. This comes on top of several years of high inflation, which has significantly increased the cost of rebuilding materials. Insurers have struggled to recoup these costs through premium pricing. California’s strict regulations on insurance rates limit how much insurers can adjust premiums based on increased risks, leading some companies to stop offering policies altogether. Sympathy goes out to those affected by the recent wildfires, and the recovery process may be prolonged if insurance becomes unaffordable, or banks hesitate to lend on uninsured homes.

#5 Eating Out: Price increases at restaurant chains slowed to 1.41% in the fourth quarter, according to Technomic, as the industry shifted to a more normalized rate of inflation. However, slower inflation does not mean menu prices will decline, which suggests that dining-out frequency may not see an increase.

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