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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Liquidity Risk in $1.2 Trillion of Bond Funds Exposed by Covid by Sam Potter (Bloomberg)

An argument that bond ETFs are a source of systemic risk because authorized participants who facilitate ETF creation and redemption have funding constraints. [Link; soft paywall]

Credit Suisse’s #Zoltan Warns of Trouble Ahead in Money Markets by Julia-Ambra Verlaine (WSJ)

An alarmist interpretation of the insights offered by Credit Suisse money market maven Zoltan Pozsar, the dean of analysts who follow the complex flow of funds through short-term funding markets and between various financial institutions. [Link; paywall]

The Collapse of Overend, Gurney, and Co. by Global Financial Data (Threadreader App)

How a bank with a simple, predictable, and reliable business model turned into a massive failure on the back of rampant railroad speculation during the middle of the industrial revolution. [Link]

GOATs

Spelling bee champ Zaila Avant-garde is basketball whiz — and Guinness World Record holder by Scott Gleeson (USA Today)

The most impressive 8^th-grader we’ve ever come across is Zaila Avant-garde, a teenage phenom who not only won the national spelling bee this week but is also an impressive athlete who can shoot a basketball better than most adults. [Link]

Column: Don’t miss it. Shohei Ohhhhh-tani is delivering the best season in baseball history by Bill Plaschke (LAT)

Los Angeles Angels pitcher Shohei Ohtani is not only leading the majors in dingers and nears the top in runs, RBIs, and slugging, but is also 4-1 on the mound with an impressive 3.49 ERA and 87 Ks. [Link]

Regulation

FACT SHEET: Executive Order on Promoting Competition in the American Economy (White House)

This week the Biden Administration announced a new initiative focused on raising competition, especially in the labor market. The list is exhaustive and includes some areas that more conservative voices have focused on for years. Regardless of the political content, this is an interesting new approach to regulatory policy. [Link]

SEC Charges Three Individuals with Insider Trading (SEC)

Insider trading charges have been leveled against individuals connected to Long Blockchain Company, a penny stock that pivoted from iced tea to blockchain, driving a massive spike in shares. Two are already in litigation related to a prior stock manipulation scheme. [Link]

A third of Wisconsin’s wolves killed after losing protections this year, study says by Douglas Main (National Geographic)

After wolves had their protected species status revoked, Wisconsin allowed hunting of the animals and the end result was roughly one-third of the species was killed in the state in just one year. [Link; soft paywall]

Q2 Reports

Startups have never had it so good by Alex Wilhelm and Anna Heim (TechCrunch)

Second quarter data shows that strong venture dealmaking activity has continued with record dollar value for invested funds. As a result, deal multiples and overall sizes are surging. [Link]

Mall Index – Q2 2021 by Ethan Chernofsky (Placer.ai)

Compared to 2019, indoor mall visits were down 8.1% in June, versus a decline of as much as 29% in February 2021. Outdoor mall traffic has held up better but is still down versus 2019. [Link]

Research

Observing Many Researchers Using the Same Data and Hypothesis Reveals a Hidden Universe of Uncertainty by Breznau et al (MetaArXiv Preprints)

A hilarious paper that shows wildly different scientific results from the same initial data that cannot be explained by observable characteristics of models specified. The results suggest caution is warranted whenever interpreting scientific findings. [Link]

Stabbing

The Game That Ruins Friendships and Shapes Careers by David Klion (Foreign Policy)

A dive into the rough-and-tumble world of Diplomacy, a superficially simple board game that serves as a perfect training ground for the sort of realpolitik that dominates modern Washington. [Link]

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Have a great weekend!

Earnings season begins in earnest next week with the first of the big banks out with Q2 results.  In the table below, we show the 29 stocks set to report over the next two weeks with market caps above $100 billion. Using our Earnings Explorer, we show historical Q2 earnings and sales beat rates versus analyst expectations.

As shown, Goldman Sachs (GS), Pepsi (PEP), and JP Morgan (JPM) kick things off on Tuesday before the open.  BlackRock (BLK), Citigroup (C), Wells Fargo (WFC), and Bank of America (BAC) all report on Wednesday before the open, and then Schwab (SCHW), Morgan Stanley (MS), and UnitedHealth (UNH) report on Thursday morning.  The following week we’ll hear from a number of big blue-chips like IBM, Netflix (NFLX), Verizon (VZ), Coca-Cola (KO), Johnson & Johnson (JNJ), Tesla (TSLA), Microsoft (MSFT), Intel (INTC), American Express (AXP), and Lockheed Martin (LMT).

Of all the stocks set to report over the next couple of weeks, there are a handful that have never missed EPS estimates on Q2 earnings.  Those names include Bank of America (BAC), UnitedHealth (UNH), NextEra Energy (NEE),  and Lockheed Martin (LMT). Intuitive Surgical (ISRG) is the only one to have never missed Q2 sales estimates.  Turning to a look at guidance, Intel (INTC) is the company on this list to most often raise guidance although its sales and EPS beat rates are more middling.  LMT and Philip Morris (PM) also have raised guidance more often than other stocks on the list.  For more in-depth analysis of earnings and how the stocks below have historically traded in reaction to their Q2 reports, join Bespoke Premium today!

The Q2 2021 earnings reporting period starts up next week with five of the six major banks reporting their quarterly numbers.  As we do ahead of each earnings season, below is a look at the most volatile stocks on earnings.  These are the stocks that have historically experienced the biggest one-day moves in reaction to their earnings reports.

While earnings season starts up next week, we really don’t start seeing a large number of daily reports until the end of July and the first week of August.  (Track upcoming earnings reports and monitor earnings-related trends using our Earnings Explorer tool.)

Below is a list of the most volatile stocks on earnings that have at least 8 quarters (2 years) of historical earnings reports.  These stocks have historically seen the biggest share-price reactions to their earnings reports on the first trading day following the report.  (For stocks that report before the open, we are looking at its one-day change on that trading day.  For stocks that report after the close, we are looking at its one-day change on the next trading day.)

As shown, Stitch Fix (SFIX) ranks first with an average absolute one-day change of +/-18.62% in reaction to earnings.  Cardlytics (CDLX), Pinterest (PINS), Snap (SNAP), and Roku (ROKU) rank two through five on this list, all with average one-day moves of +/-17%.  Other notable stocks on the list include Lovesac (LOVE), Groupon (GRPN), The Trade Desk (TTD), Nio (NIO), Cloudera (CLDR), and ZScaler (ZS).

The list above included any stock that has at least 2 years of quarterly reports.  Below we show a list of the most volatile stocks on earnings that have at least 5 years (20 reports) of quarterly reports.  (Stocks typically see decreasing earnings volatility over time simply because of more data points.)

Of the stocks with at least 5 years of quarterly earnings data, The Container Store (TCS) ranks as the most volatile on earnings with an average absolute one-day move of 16.80%.  Impinj (PI) ranks 2nd followed by Groupon (GRPN), At Home Group (HOME), Infinera (INFN), and Fluidigm (FLDM).  Other notable stocks on this list include Enphase Energy (ENPH), Yelp (YELP), Stamps.com (STMP), LendingTree (TREE), Twitter (TWTR), RH (RH), Wayfair (W), Netflix (NFLX), iRobot (IRBT), Chegg (CHGG), 3D Systems (DDD), and Etsy (ETSY).

Our final list of volatile stocks on earnings only includes names that have at least 10 years (40 quarterly reports) of earnings history.  Amazingly, despite being well-established companies, they still experience an average one-day move of at least +/-10% on their earnings reaction days.  In other words, they normally see their market value rise or fall by at least 10% at least once per quarter when they report earnings.

At the top of this list are Infinera (INFN), Stamps.com (STMP), Conn’s (CONN), Netflix (NFLX), and Fossil (FOSL).  Other notables include iRobot (IRBT), 3D Systems (DDD), Overstock.com (OSTK), Align Tech (ALGN), Guess? (GES), Crocs (CROX), and TravelCenters of America (TA).

If you’re looking for action this earnings season, you’ll likely find it in the names listed in these tables.  Unfortunately, without a crystal ball, there’s no way to know whether the big moves will be to the upside or the downside!  Click here to start a trial to Bespoke Institutional and gain access to our Earnings Explorer tool.

In the last few months of 2020 and throughout 2021, the S&P 500 Value ETF (IVE) was consistently outperforming its growth counterpart (IVW).  Since its most recent high in early June, though, IVE has given up the ghost falling  2.5%.  Although not a dramatic decline, IVE’s drop has coincided with a rally of 7.3% in IVW and an even larger 12.5% rally off the May 12th lows.

With growth having gained so much ground on value, on Tuesday, IVW’s year-to-date performance actually moved above that of IVE. That has continued to be the case through the rest of the week as IVW is currently outperforming IVE on a year-to-date basis by almost a full percentage point. Additionally, looking at the past year’s relative strength between the two ETFs, the recent divergence in performance has resulted in relative strength reverting back to zero meaning growth and value have roughly performed in line with one another over the one year span. Click here to view all of Bespoke’s premium membership options and sign up for a trial to any one of them.

Leading up to the over 1% reversal lower today, the past week has seen the S&P 500 and NASDAQ make a number of new all-time highs. In spite of this, the weekly sentiment survey from AAII showed bullish sentiment give up all of its gains from the prior week as it came in at 40.2%. That is back down to the same level as of June 10th and the 8.4 percentage point decline was the largest since the 10 point drop at the end of April.

Bearish sentiment did not exactly pick up those losses as the reading only rose 2.3 percentage points to 24.5%.  That was not a particularly large increase as it only brought bearish sentiment to the highest level in three weeks. While higher sequentially, bearish sentiment remains at the low end of the past several years’ range.

With bulls not becoming bears, neutral sentiment moved higher gaining 6.1 percentage points.  At 35.3%, it is still below levels from two weeks ago and is even further below the recent highs that neared 40%.  Click here to view Bespoke’s premium membership options.

Chart source: American Association of Individual Investors

Initial jobless claims disappointed this week rising to 373K versus expectations of a reading 23K lower. Not only was this week’s print higher than expected, but last week’s number was revised up from 364K to 371K.  Even though last week’s data was not as strong as it originally appeared to be and this week marked a slight worsening, taking a step back, claims are still at some of the lowest levels of the pandemic and only around 160K above pre-pandemic levels.

On a non-seasonally adjusted basis, claims were again slightly higher rising from 366.5K to 369.7K.  While higher, given seasonality trends, this was a notable move.  Since 1967, the current week of the year (27th) has only seen UI claims fall week over week once.  That decline came last year when claims were coming off of historically elevated levels. While initial claims returned to the usual seasonal pattern this year, it wasn’t by much.  Outside of last year, for the 27th week of the year, this past week saw the smallest increase on record.

Turning to the impact of Pandemic Unemployment Assistance (PUA), claims fell back below 100K this week as a handful of more states withdrew from the program.  Total claims between the two programs summed to 468.7K this week, dropping week over week but still above the low of 435.8K from the first week of June.

While initial claims disappointed, continuing claims fell week over week and came in below the forecasted reading of 3.35 million.  Claims this week totaled 3.339 million, setting a new low for the pandemic which is around twice as high as pre-pandemic levels.

Including all programs into continuing claims counts creates an additional week’s lag in the data meaning the most recent reading is through the week of June 18th.  On a combined basis, continuing claims have continued to improve putting in another low at 14.23 million.  While they remain the two largest programs accounting for the highest share of total claims, significant declines in PUA and PEUC programs drove that overall decline, offsetting a 53.1K increase in regular state claims.   Click here to view Bespoke’s premium membership options.

Mega cap stocks are an important area to watch and have been an area of our focus recently as the relatively small number of names hold a large weight within the S&P 500.  Their recent strength has propelled the broad market to a series of new highs in spite of what has been weaker breadth outside of this space.

In the chart below, we take a closer look at the relative performance of the four largest stocks versus the S&P 500 over the past year.  Alphabet (GOOGL) has performed the best versus the S&P 500 of the four names shown and is at one-year highs.  Apple (AAPL) outperformed the S&P significantly in 2020 but gave it all back from late January through May.  Since June, however, Apple has been on a tear versus the market.  Microsoft (MSFT) and Amazon (AMZN) are both still underperforming the S&P over the last twelve months, but they have made solid moves higher since June.  Click here to view all of Bespoke’s premium membership options and to sign up for a trial.