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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Stock Drama

BlackRock Starts to Use Voting Power More Aggressively by Dawn Lim (WSJ)

The giant fund company is starting to put its proxy votes where its mouth, with a sharp increase in the number of environmental, social, and governance proposals in the first half of this proxy year versus the prior year when only a tiny fraction of those categories got support from the ubiquitous index fund provider. [Link; paywall]

Berkshire Hathaway’s Stock Price Is Too Much for Computers by Alexander Osipovich (WSJ)

The un-split A-shares of Berkshire have neared a maximum value that NASDAQ’s trading systems can handle, with shares knocking on a magic and unfortunate limit of $429,496.7295 per share. [Link; paywall]

Pandemic Culture

The Hot-Person Vaccine by Kaitlyn Tiffany (The Atlantic)

Tastemakers have landed on the Pfizer jab as the must-have injection of the vaccination season, for reasons that completely escape just about everyone. [Link; soft paywall]

New York City Is Roaring Back to Life, One Year After Its Nadir by Misyrlena Egkolfopoulou (Bloomberg)

With more than half of NYC vaccinated, the subway is going back to 24 hour service, and bars are opening up as the giant metropolis shakes off the past 13 months of cobwebs that made it a shadow of its former self. [Link; soft paywall]

Too Much Zoom

Even the CEO of Zoom Says He Has Zoom Fatigue by Chip Cutter (WSJ)

A never-ending slog of video calls is creating burnout and driving executives to push for a return to the office sooner rather than later, with even the CEO of remote work posterchild Zoom reporting fatigue over video calls. [Link; paywall]

‘I Used to Like School’: An 11-Year-Old’s Struggle With Pandemic Learning by Rukmini Callimachi (NYT)

For students that don’t have access to reliable internet, remote schooling has been an enormous burden, and one that has fallen overwhelmingly on non-white children. [Link; soft paywall]

Big Shifts

A Farmer Moved a 200-Year-Old Stone, and the French-Belgian Border by Anna Schaverian (NYT)

In Belgium, a treaty dating back to a post-Napoleonic years was violated by a farmer moving an inconvenient stone border marker to the edge of his field. [Link; soft paywall]

Microsoft is rolling out a new default font to 1.2 billion Office users after 14 years — and the designer of the old one is surprised by Jordan Novet (CNBC)

Vaunted workhorse of office documents Calibri is taking a back seat, with one of five potential replacements announced this week set to take the crown from the default font of Word, Excel, and other MS Office documents. [Link]

Demography

Births in U.S. Drop to Levels Not Seen Since 1979 by Janet Adamy (WSJ)

The number of American newborns dropped 4% in 2021 as birth rates fell to the lowest levels on record dating to at least the 1930s, with the lowest number of babies since 1979. [Link; paywall]

Renewables

Trends in electricity prices during the transition away from coal by William B. McClain (BLS)

Producer price indices for electricity in regions that use more renewable power have grown less over the long term than those in regions with less renewables generation. [Link]

Hollywood

‘A Quiet Place’ Stars Think Paramount Owes Them Money by Lucas Shaw (Bloomberg)

With studios shifting theatrical releases to streaming networks, actors are scrambling to protect their share of proceeds; contracts typically give huge names a share of box office receipts that are being skimmed off thanks to shorter theater runs. [Link; soft paywall]

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Have a great weekend!

After struggling for most of the past couple months, momentum and Tech stocks are broadly outperforming today as the Nasdaq is up 1.25% compared to a 0.78% gain in the S&P 500.  The ARK Innovation ETF (ARKK) has been a poster child of the momentum theme over the past year.  After a 383.9% gain from the March 2020 low to its high in mid-February, ARKK has fallen around 30% in the months since then.  For most of that time, the ETF consolidated between its 50 and 200-DMA. After a failed attempt to break above its 50-DMA at the end of April, it has taken a leg lower, falling below its 200-DMA for the first time in a year in the process. While ARKK has yet to move back above its 200-DMA, it has found support around $105 which traces back to the lows earlier this spring and the highs from the fall. In other words, from a technical perspective ARKK, as well as some of its holdings, still have plenty of technical hurdles including moving back above its moving averages and breaking the past few months’ downtrends. At least for the time being, the group has found some respite in the move higher today.

As for the individual holdings of the ARKK ETF, below we show the 25 largest which accounts for approximately three-quarters of net asset value.  For the most part, these stocks continue to sit on huge gains from the past year (or since their market debut for those that have IPO’ed in the past year; bolded and bordered rows in the table below) with only a small handful in the red: Teladoc (TDOC), Coinbase (COIN), and Iovance Biotherapeutics (IOVA). Even though the 25 largest ARKK holdings are on average up 117% over the past year, they have certainly been a pain trade recently. Most of these names are deeply oversold at the moment, and relative to their 52-week highs, they are down 35% on average.  In fact, of all 58 holdings, there are only four—Intercontinental Exchange (ICE), TuSimple (TSP), Trimble (TRMB), and PACCAR (PCAR)—that are less than 10% below their 52-week highs, and none of these break into the top 25 largest holdings (as such they are not pictured below).

While ARKK holdings have generally been weak over the past few months, in recent days there have been some notable developments in the charts of these names. Some of these like CRISPR Therapeutics (CRSP) and EXACT Sciences (EXAS) have fallen below the long-term 200-DMA. Other names in the ETF broke below their 200-DMA a while ago now, and their charts do not look much better. Stocks like Invitae (NVTA), Materialise (MTLS), and Teladoc (TDOC) collapsed below their long-term moving averages earlier this spring and this week’s moves lower have resulted in breaks of critical support levels. For TDOC and MTLS, those levels have previously marked support at multiple points in the past year. One other interesting name in terms of performance today is Regeneron (REGN).  Unlike many other ARKK stocks, REGN has actually been trending higher since March, albeit that is in the context of a much longer-term downtrend than many other ARKK holdings. Regardless, that recent rally has resulted in the stock to run right up to its long-term downtrend. In another move that is out of sync with its peers, today it has reversed lower, failing to break out from that downtrend.

While most names have pulled back sharply and continue to trend lower to sideways at best, that is not to say all ARKK stocks have entirely negative charts. Similar to the ETF’s chart, there are several names that have found support in the past couple of days.  For example, DocuSign (DOCU), Iovance Biotherapeutics (IOVA), Palantir (PLTR), and Spotify (SPOT) are all bouncing off critical support levels of the past year. For others like Fate Therapeutics (FATE), Iridium (IRDM), PagerDuty (PD), PACCAR (PCAR), and Synopsis (SNPS), those support levels have also coincided with their moving averages. PACCAR is also notable in that it is even breaking back above its 50-DMA today. Similarly, Novartis (NVS) is attempting to move back above its 200-DMA. Perhaps one of the most technically strong stocks of these has been Sea Ltd (SEE).  Over the past year, the 50-DMA has consistently provided reliable support. After a brief dip back below in March, in April it moved back above its 50-DMA and has once again successfully retested in the past week.

In order to keep track of the ARK Innovation ETF’s (ARKK) holdings, we created a custom portfolio that members can add here.  Please note that this does not update real time and is only based on ARKK’s holdings as of 5/6/21.

As always, investors should do their own research before buying or selling any securities, and this chart analysis is in no way meant to be a buy or sell recommendation.  Click here to view Bespoke’s premium membership options for our best research available.

The major indices are broadly lower in the past week with the exception of the Dow which has risen just over 1%. The Nasdaq on the other hand has been the worst performer falling almost 3%.  Even though the major indices are split in terms of performance, sentiment has gone the way of the Dow as bullish sentiment as measured through the AAII weekly survey rose 1.7 percentage points to 44.3%.  While not a particularly large increase, this week did mark the first time bullish sentiment has risen in a month.

With bullish sentiment higher, fewer respondents reported as bearish.  Only 23.1% of investors reported pessimistic sentiment; down 2.6 percentage points versus last week’s reading.  Just like bullish sentiment, that was not a particularly large change, and it leaves the reading in the middle of the past several weeks’ range.

The inverse moves in bullish and bearish sentiment resulted in the bull-bear spread climbing 4.3 points to 21.2.  While that is still at the high end of the past few years’ range, it is 11 points below where it stood only two weeks ago. Looking at another sentiment survey from Investors Intelligence which targets equity newsletter writers, the bull-bear spread also rose slightly week over week leaving the spread well below levels from only a couple of weeks ago.   In other words, sentiment has moderated recently, but it has not dramatically shaken a historically bullish tone.

Perhaps the most notable reading in this week’s AAII survey was the reading on neutral sentiment.  Up 0.7 percentage points from the prior week, it was not a particularly large gain especially compared to the 5 and 5.2 percentage point gains the previous two weeks. Regardless, moving higher once again neutral sentiment hit the highest level since the first week of March.  Other than that week and the current one, there has only been one other week in the past year (second to last week of 2020) in which neutral sentiment was as high as it is now.  Even though this week’s reading is elevated relative to the past year, compared to the rest of the history of the survey, it is pretty unremarkable.  On average over the life of the survey, neutral sentiment has averaged a reading just 0.9 percentage points lower than this week’s reading.

The NAAIM Exposure Index is yet one more sentiment reading that also has shown some moderation but remains at a generally bullish level.  This index reflects the average exposure to US equities of members of the National Association of Active Investment Managers. Readings of 200 would indicate they are leveraged long on average, 100 would be fully invested, 0 would be market neutral, -100 would be fully short, and -200 would be leveraged short. Last week saw this index tip above 100 for the first time since mid-February which also ranked in the top 2% of all readings going back to 2006. This week it fell 15.93 points. That stands in the bottom decile of weekly moves and was the largest drop since late March, but at 87.79, the index still points to historically bullish positioning among active managers. Click here to view Bespoke’s premium membership options for our best research available.

Last week’s number for seasonally adjusted initial jobless claims was revised higher by 37K. That means that while the original print of 553K was the lowest level of not only April but also of the entire pandemic, the revised reading actually changed that to make for the highest level of claims in three weeks. In spite of this, in the most recent week’s data, jobless claims dropped by 92K to 498K. That is the first reading below 500K of the pandemic era and is now down over 90% from the high in claims just over a year ago. This week’s reading is also for the first time less than double the reading from just before the massive upswing in claims in March of last year.

While there is the added factor of seasonal tailwinds—every week from the second week of April through the end of May has historically averaged a week over week decline in SA claims—on a non-seasonally adjusted basis, the data was just as positive.  Although claims did not take out the 500K level by this measure, they did fall over 100K to 504.7K which also marked a pandemic low.  PUA claims dropped around 20K to just above 100K. Again, that makes for the lowest level of claims both for this program and on a combined basis since the start of the pandemic.

Lagged an additional week to initial claims, continuing claims continue to look less positive. As we mentioned last week, though it doesn’t take away from the fact that there have been massive and consistent improvements in just a year’s time, continuing claims have experienced a significant deceleration in improvements over the past few months.  The past couple of weeks have been the pinnacle of this. Last week’s reading was revised lower by 7K meaning the print only saw a 1K increase WoW, but that still snapped a 14 week-long streak of consecutive sequential declines. Pair that with the 37K increase to 3.69 million this week, and continuing claims have experienced the first back-to-back increases since last May when jobless claims were rising by well above 1 million per week.

Even though continuing claims via the regular state programs have plateaued, that gives an incomplete picture.  Including all other programs helps to solve that, though it does create an additional week’s lag to the data meaning the most recent week is through April 16th.  Including all programs, the tone is more optimistic. Total claims across all programs fell by 404K to 16.185 million.  Barring the irregular drop in the first week of the year to 16.048 million when some plans had lapsed due to the timing of the signing of the spending bill, that makes for the lowest level of claims since the first week of last April. Considering the lack of improvements in regular state claims and the fact that the program accounts for a smaller share of total claims than earlier in the pandemic, the main drivers of the overall decline in total claims were significant drops in PUA claims and the Pandemic Emergency Unemployment Compensation (PEUC) program.  Click here to view Bespoke’s premium membership options for our best research available.

The CDC issued guidance this week on how cruise operators can run test cruises in order to move closer to returning to ‘normal’ cruising operations.  At the surface, one would assume that anything that moves the industry closer to returning back to business would be a positive for the sector, but when the cruise stocks have already bounced so much off their lows, a lot of the good news appears to be priced in.

A key sign of good news being priced into a stock happens when you start to see selling into strength, and that’s exactly what we’ve seen over the last several weeks in the cruise operators.  The charts below show the performance of Carnival (CCL), Norwegian Cruise Lines (NCLH), and Royal Caribbean (RCL).  In each chart, we have included red arrows over days when the stocks saw strong intraday gains only to reverse lower from their highs into the close.  Not only have we seen a number of these types of reversals in the last several weeks, but in most cases, each successive intraday high has been lower than the prior peak. The fact that investors are selling strength at progressively lower levels suggests a degree of eagerness to exit positions.  If you’re willing to sell something for $38 today that you were selling for $40 last week, you’re what they call a motivated seller.

While the selling into strength in these cruise stocks may be disheartening if you are long, at this point the cruise operators haven’t yet shown any meaningful signs of breaking down.  CCL still remains comfortably above its highs from last June and December, and each recent sell-off has been met with some buying at higher levels (motivated buyers) causing a series of higher lows.  For NCLH, it’s a similar story.  Of the three stocks, the only one that has been experiencing lower lows from each reversal has been RCL, but while it is currently modestly below its late 2020 high, it has yet to show a meaningful breakdown. Looking for full access to our research and market analysis? Sign up for a two-week trial today.

For a few quarters now we have seen extremely strong earnings reports relative to expectations.  Over the long-term going back to the early 2000s, roughly 60% of stocks have topped quarterly earnings estimates.  Over the last year, the beat rate has jumped up to 76%, and this earnings season we’ve seen an 81% beat rate.  Prior to the current bull market that began in March 2020, an earnings beat resulted in a one-day share price gain of 1.78% on average, but so far in 2021, stocks that have beaten earnings estimates have actually averaged a one-day decline of 0.01%.  This essentially means that an earnings beat is now viewed as par for the course; something that is a given.  This is likely something we’ll continue to see until earnings beat rates drop back down to more normal levels.

An earnings triple play is a term we coined back in the mid-2000s for a company that not only beats earnings estimates but also tops sales estimates and raises forward guidance.  Triple plays (beat EPS, beat sales, raise guidance) are the “cream of the crop” of earnings season, and stocks that report triple plays have historically reacted very positively to the news.

Along with an increase in the percentage of companies beating EPS estimates, we’ve also seen a sharp rise in earnings triple plays.  Over the last 10 years, 5.12% of the roughly 100,000 earnings reports in our Earnings Explorer database have been triple plays.  So far this earnings season, 15.21% of all earnings reports have been triple plays!

Given the sharp rise in the number of triple plays this earnings season, the normal share-price jump that usually accompanies the report has just not materialized.  Below is a snapshot we took using our Earnings Explorer that provides a summary of all earnings triple plays seen over the last ten years.  During this span, we’ve seen 5,159 earnings triple plays since May 2011, and these triple plays have averaged a one-day gain of 5.25% in reaction to the news.  A one-day gain of 5.25% is nothing to sneeze at, but it’s to be expected (normally) when a company reports a strong quarter and raises forward guidance.

If we only look at earnings triple plays so far this earnings season, however, we see that they’re hardly gaining at all in reaction to the strong report.  The 148 triple plays seen so far this season since April 12th have averaged a one-day gain of just 1.61%.  That’s less than a third of the usual gain seen for triple plays.  Similar to the commentary above around earnings beats, until we see the number of triple plays drop back down to more normal levels, investors will likely continue to shrug at them.  Our Earnings Explorer is an excellent resource that’s available with a Bespoke Institutional membership.  You can start using it today with a two-week trial.

Glancing across the ETFs tracking the stock markets of the 23 countries in our Global Macro Dashboard, broadly there has been some downside mean reversion in the past week.  Whereas all but three countries were over one standard deviation above their 50-DMAs last week, today that number has been roughly cut in half with only 11 countries still overbought. Many of those today are even sitting on the cusp of falling out of overbought territory. The top-performing country in the month of April was Taiwan (EWT), but over the past five days, it has been the worst performer of the group resulting in one of the biggest moves within respective trading ranges.  EWT is now in neutral territory compared to extreme overbought levels last week.  Another APAC country to have seen a massive move in its trading range was Malaysia (EWM). EWM fell from overbought levels all the way through its 50-DMA to oversold territory.

Elsewhere in the region, two other notable countries are India (INDA) and Japan (EWJ). As we noted in last week’s Bespoke Report,  there were very few losers across asset classes in April, but two exceptions were India and Japan which fell 2.75% and 1.61%, respectively.  As such, these were the two worst-performing country ETFs in April.  While INDA was the worst performer last month, in the past week it is outperforming the rest of the world with a 30 bps gain.  That compares to a 1.14% average loss across all 23 countries.  That is also far better than the 1.48% average decline for emerging market countries.

The major factor in the weakness in Indian equities recently has been the deteriorated COVID situation in the country. As shown below, new COVID cases per day per million bottomed in mid-February but have grown exponentially ever since.  Currently, new cases per day per million people are running at a pandemic high of 276.2. Interestingly, that upswing in cases coincided with the equity market stalling out and entering a short-term downtrend. Recently, case counts continue to grow albeit that growth rate has slowed a bit.  Hand in hand with that slowdown, INDA has begun to turn higher and has broken the downtrend that has been in place since the March 11th 52-week high. Today, it is trading 1.76% higher and is even testing its 50-DMA from below.  In both cases, those small reversals in trends are welcome signs but there is still plenty of room left for improvement.  Click here to view Bespoke’s premium membership options for our best research available.