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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Recession

Business Cycle Dating Committee Announcement July 19, 2021 (NBER)

After the longest expansion in modern economic history, the National Bureau of Economic Research has officially declared the shortest recession on record, with the post-COVID trough coming after just two months of economic activity declines. [Link]

Renewables

A Process for Capturing CO2 from the Atmosphere by David W. Keith, Geoffrey Holmes, David St. Angelo, and Kenton Heidel (Joule)

This 2018 paper from the team at direct air capture start-up Carbon Engineering details a process for removing CO2 from the atmosphere at a cost of $94 to $232 per ton. For reference, a barrel of oil contains 0.43 tons of CO2. [Link]

When a Coal Plant Gets Built on Top of a Highway, What Happens When It Closes? by Nachy Kanfer (RMI)

A FirstEnergy (FE) coal-fired power plant in rural Ohio is an excellent case study for how shifts in power production are making coal uncompetitive on a price basis and will likely lead to further hits to rural economies. [Link]

Startup Claims Breakthrough in Long-Duration Batteries by Russell Gold (WSJ)

While Form Energy’s iron-air batteries won’t be used to power cars or smartphones, they do have potential to discharge at high loads for a prolonged period and are very cheap, which makes them a very attractive candidate for utility-scale storage of wind or solar power produced at low cost. [Link; paywall]

Are Wind Turbines a Danger to Wildlife? Ask the Dogs. by Sarah Zhang (The Atlantic)

Onshore wind turbines kill lots of birds and bats, and figuring out what the numbers look like is a lot easier when dogs get involved in the search for winged victims. [Link]

Labor Markets

Let me work from home, or I will find another job by Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis (Working Paper)

While it’s not clear just how many companies will fully embrace remote work, this paper makes a compelling case that workers vastly prefer “hybrid” arrangements, enough to switch jobs if given the chance. [Link; 8 page PDF]

The Noncompete Clause Gets a Closer Look by Lauren Weber (WSJ)

The Biden Administration has prompted a review of noncompete clauses, which can reduce worker mobility and prevent them from finding higher-wage work at a competitor. [Link; paywall]

Early impacts of the expiration of pandemic unemployment insurance programs (Arindrajit Dube)

An early review of the 25 states which have reduced pandemic unemployment insurance programs suggests that while they have reduced the UI benefit rolls, they have not led to any measurable impact on employment rates. [Link]

Chipotle, Target use TikTok to find the workers they need in tight job market by Susan Caminiti (CNBC)

Major corporations are working with Tiktok Resumes, a new service that allows candidates to submit video resumes rather than the more traditional one-pager. [Link]

Now Hiring: White Castle—Four Years After You Applied by Te-Ping Chen (WSJ)

Companies are reaching deep into their inboxes looking for people to work, in some cases years after the applicants initially reached out. [Link; paywall]

Deutsche Fehler

Deutsche Bank Enabled ‘Massive’ U.S. Ponzi Scheme, Lawsuit Says by Steven Arons (Bloomberg)

A suit alleges that the German lender helped facilitate a Ponzi scheme run out of two Cayman funds which ended up costing investors hundreds of millions. [Link; soft paywall]

The German Experiment That Placed Foster Children With Pedophiles (The New Yorker)

It’s hard to summarize the various strands of post-Nazism national guilt, misguided efforts at liberation, and pedophilic predation that tie this long story together, but the result is both horrifying and enthralling. Content warning: this article discusses child abuse of various types. [Link]

Barmy Britain

Eric Clapton Says He Won’t Play Venues That Require Proof of Vaccination by Ethan Shanfeld (Yahoo!/Variety)

British singer Eric Clapton is so opposed to vaccination that he won’t play at convert venues which require vaccination from attendees. [Link]

Peppa Pig, a Pandemic Favorite, Has American Children Acting British by Preetiuka Rana and Meghan Bobrowsky (WSJ)

American children are watching so much of the popular British cartoon that they’re developing British accents and using British vocabularies. [Link; paywall]

Bitcoin

Viral video shows Malaysian police destroying 1,069 bitcoin mining rigs with a steamroller by MacKenzie Sigalos (CNBC)

In Malaysia, a local police department seized over 1,000 bitcoin mining rigs that had been running on stolen electricity. [Link]

Supply Chains

Taco Bell warns of menu disruptions caused by shortage of ingredients by Lexi Lonas (The Hill)

Transportation bottlenecks are fowling the delivery system which makes sure you can get a delicious Crunchwrap Supreme whenever you like. [Link]

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Have a great weekend!

It has been a period of sideways trading right near record highs for European equities since mid-June.  After a break below its 50-day moving average and an apparent break of its uptrend, European equities were quick to rebound and this morning are trading right at record highs once again.

While European equities are right back at record highs this morning, from the perspective of a US investor, the picture doesn’t look nearly as bright. After a gap lower right after it traded at its last record high in mid-June, the STOXX 600 in dollar adjusted terms was hugging its 50-DMA for more than a month before breaking down earlier this week.  And while the STOXX 600 was quick to rebound back above its 50-DMA in local currency terms, on a dollar adjusted basis, it hasn’t gotten there yet.

Obviously, the key culprit in the divergence between the performance of the two indices is the dollar. As shown in the chart of the US Dollar Index below, the last time the STOXX 600 was hitting new highs in mid-June, the dollar was right near 52-week lows.  After the June FOMC meeting, though, the Dollar spiked higher and has continued climbing ever since, and that is clearly acting as a weight on the performance of US investors’ international investments.  Click here to view and try out Bespoke’s premium membership options where we cover both US and international market developments.

Below is a look at week-to-date, quarter-to-date, and year-to-date performance numbers across asset classes using US-listed ETFs.  While this week started off with a big drop for stocks on Monday, equities have bounced back nicely and are sitting on WTD gains of ~1%.  The Nasdaq 100 (QQQ) and Russell 2,000 (IWM) are up the most on the week, but IWM remains down 4.7% on the month and up 11.8% on the year.  That 11.8% YTD gain is the weakest of the main US index ETFs.

Growth ETFs are outperforming value ETFs this week, and the DJ Dividend ETF (DVY) remains down 0.8% on the week.  Even with this week’s declines, DVY has been one of the best style ETFs on a year-to-date basis.  Looking at sectors, the two main defensives (Utilities and Consumer Staples) are still in the red this week, and they’re up less than any other sectors on the year.  Consumer Discretionary (XLY) and Technology (XLK) have done the best this week, while their YTD returns sit right in the middle of the pack.  Energy (XLE) and Financials (XLF) remain the two best sectors on the year even though they’ve been consolidating for the past couple of months.

Outside of the US, we’ve seen the biggest gains for Canada (EWC) and Spain (EWP) this week, while Brazil (EWZ) and Mexico (EWW) are the two countries furthest in the red.  While the developed world ETFs (EFA, IOO, CWI) are up this week, emerging markets ETFs like EEM and BKF are down.  In terms of YTD performance, the Global 100 (IOO) is handily outperforming emerging markets (EEM).

In the commodity space, the natural gas ETF (UNG) is up sharply this week with a gain of 8.7%.  This week’s gains have boosted UNG’s YTD move above the 50% mark.  The oil ETF (USO) is up the second-most on the year of the commodity ETFs listed with a gain of 48.95%.  The broad commodities ETF (DBC) is also up sharply on the year at +29.6% even though the two main precious metals (GLD, SLV) are down 4-5%.

The two main crypto exchange-traded products — GBTC and ETHE — have finally bounced a bit this week with gains of 3-4%.  They’re still solidly red on the month, although ETHE is still up 19.4% on the year.  GBTC, on the other hand, remains down 15.5% year-to-date.  Start a two-week trial to Bespoke Premium if you’d like to read our weekly Bespoke Report newsletter published every Friday afternoon.

While there aren’t a lot of earnings reports on tap after the close today, there will be some notable reports from Intel (INTC), Snap (SNAP), and Twitter (TWTR).  Investors have plenty of reasons to be bullish or bearish on these companies ahead of earnings, but we thought we’d provide a brief snapshot of how each stock has typically reacted to earnings reports in the past on both an overall basis and broken out by earnings seasons.  The snapshots below are from our Earnings Explorer tool and show a breakdown of how often each stock exceeds EPS and revenue estimates as well as the percentage of time each one raises guidance.  In addition, we then show how each stock has historically reacted to its earnings report on the first trading day after the report, and we break that performance out based on the average opening gap, the change from the open to close, the full-day return, and volatility (absolute average percent change on the day).

Starting with INTC, historically the stock has topped EPS forecasts 78% of the time, exceeded sales forecasts 76% of the time, and raised guidance 25% of the time.  In the Q2 earnings season, the company’s EPS and sales beat rates are both less than average, but the company has raised guidance more often in the current earnings season than any other quarter.  In terms of stock price performance, INTC typically doesn’t react particularly well to its earnings reports.  For all of its earnings reports over the last 20 years, INTC has only risen on its earnings reaction day half of the time for an average one-day decline of 0.79%.  In the Q2 earnings season specifically, INTC has been even weaker with an average one-day decline of 1.41%.  When it comes to earnings, the only earnings season where the stock has reacted positively to earnings more often than it has reacted negatively is during the Q1 earnings season (April reports).  More recently, earnings reports haven’t been particularly friendly to INTC as the stock has declined on its earnings reaction day following four of the last five reports.

Snap (SNAP) has been public for less than five years, and its earnings track record has been mixed.  While the stock’s average one-day reaction to earnings has been a gain of 2.82%, it has only posted positive returns in reaction to earnings 41% of the time.  Q2 earnings season has been even tougher on SNAP stock as it has only risen in reaction to earnings following one of its four Q2 reports for an average decline of 2.13%.  More recently, the stock has traded more positively to earnings with positive returns following four of its last five earnings reports. One thing you can count on when it comes to SNAP and earnings is the stock will be volatile.  The stock’s average one-day reaction to earnings has been a move of +/- 17.2%.

Twitter (TWTR) has been public for nearly twice as long as SNAP, and even with a larger sample size, it hasn’t typically reacted well to earnings.  Despite topping EPS and revenue estimates 80% of the time, SNAP’s average one-day reaction to earnings has been a decline of 2.94% with positive returns just 40% of the time.  During the Q2 earnings season, TWTR’s EPS and revenue beat rates haven’t been as strong as the overall averages, and it shows in the stock’s average reaction to earnings.  Of the seven Q2 earnings reports for TWTR, the stock’s average performance is a decline of 4.39% with gains just 43% of the time.  The only quarter that has been weaker is the Q1 earnings season, and true to form, the stock dropped more than 15% on the day after its report back in April.  You can track these stats for all of the stocks you follow using our Earnings Explorer tool.  The Earnings Explorer is available with a Bespoke Institutional trial, which you can start today.

For the third week in a row, bullish sentiment has slid with this week’s reading from the AAII falling to 30.6%.  With a cumulative 18-percentage point decline in that time, bullish sentiment is now at the lowest level since October 1st, 2020.

An identical share of respondents to the survey reported as bearish this week.  That is only the 47th time in the survey’s history that an equal share reported as bullish and bearish with the most recent other occurrence being the end of October 2020.  Now back above 30%, bearish sentiment is at the highest level since the first week of February which is also essentially right in line with the historical average for bearish sentiment (30.53%).

Identical readings in bullish and bearish sentiment means the spread between the two is at zero. As shown below, that is the first non-positive reading in the spread since the last week of January.

As previously mentioned, throughout the history of the AAII’s survey going back to the late 1980s, there have only been 47 instances of identical readings in bullish and bearish sentiment, or when the bull-bear spread equals zero, including the most recent instance. In the chart below we show the average performance of the S&P 500 over the next weeks and months following those instances.  As shown, across the board the S&P 500 has tended to underperform the norm with the one-week and one-month periods averaging a decline.  Again, while the gains are smaller than normal, the S&P 500 has at least been higher 71.7% of the time six months out and 84.4% of the time one year later.

Not all of the losses to bullish sentiment turned bearish.  Neutral sentiment rose 1.7 percentage points for a second week in a row.  At 38.7%, neutral sentiment is at the highest level since June 10th.Click here to view Bespoke’s premium membership options.

Initial jobless claims were anticipating a 10K decline to 350K this week.  Instead, claims rose back above 400K to reach the highest level since the week of May 14th. The 51K uptick to 419K this week was also the largest one-week increase since the final week of March. Not only was the most recent reading worse, but last week’s print was revised higher from 360K to 368K.

On a non-seasonally adjusted basis, it was a less dramatic increase with claims only rising 14.5K. Nonetheless, claims wound up above 400K. At 406.1K, it was the highest level in five weeks.  Taking seasonality into account, NSA claims moving higher week over week during the current period of the year has historically been uncommon.  Of all years since 1967, claims have only ticked higher during the current week of the year (29th week) 18.5% of the time.

Regular state claims were not the only area of deterioration though.  PUA claims had fallen back below 100K last week, but the most recent print rose to 110.3K. That made for the largest increase in initial PUA claims since the week of June 18th as total combined claims between regular state and PUA programs is at the highest level in two months. Delving deeper into the data though, more than half of the uptick in the national count of PUA claims was on account of a single state: Indiana.  PUA claims for that state rose from zero to 7,598 after a judge ordered the program to be restarted.

Continuing claims through regular state programs were also weaker than expected coming in at 3.236 million versus forecasts of 3.1 million. Similar to initial claims, last week’s print was also revised higher by 24K.  While expectations were calling for a larger decline and last week’s print was not as strong, adjusted continuing claims are still at the lowest level since last March.

Delayed an extra week, the inclusion of all other programs are finally clearly showing the withdrawal of states from pandemic era programs.  Total claims for the first week of July fell to 12.59 million from 13.86 million.  That 1.27 million drop in a single week was the largest since March 12th.  Obviously, the bulk of those declines were on account of PUA and PEUC programs while Extended Benefits and regular state programs also saw significant declines.Click here to view Bespoke’s premium membership options.

While the S&P 500 (SPY) may have had a string of weakness over the past week and a half resulting in a test of its 50-DMA, SPY has held up much better than many other major economies.  Looking across the ETFs tracking the equity markets of each of the 23 major economies in or Global Macro Dashboard, the US, Switzerland (EWL), and Sweden (EWD) are the only countries that are up month to date with each country posting an over 1% gain. Conversely, China (MCHI) has been the worst performer having fallen 6.42% MTD. Additionally, alongside MCHI,  Malaysia (EWM) and Japan (EWJ) are the only countries in the red year to date.

While EWD and EWL are up a similar amount to the US MTD, the US has been the only country of the 23 to have hit a 52-week high in July.  Most of the rest of the world saw 52-week highs in the first days of June or earlier. In addition to the US being one of the only countries up on the month and recently putting in a 52-week high, the past couple of days’ rally off of the 50-DMA has resulted in the US returning back to overbought territory. By comparison, Switzerland (EWL) and Taiwan (EWT) are the only other ETFs that are even above their 50-DMA whereas 13 countries are oversold.

To show the outperformance of the US relative to other geographies, in the chart below, we show the ratio of the S&P 500 to the MSCI World Index that excludes the US.  Since June, the ratio has taken off surpassing the highs from last summer in the process. In fact, the ratio has risen over 6% over the past month which stands in the top 5% of all monthly moves. That is the biggest one-month uptick in the ratio since it rose 9 percentage points last April. Prior to that, July 2016 was the last time in which the US has seen as large of a degree of outperformance.   Click here to view Bespoke’s premium membership options.