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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GameStop Madness

GameStop Day Traders Are Moving Into SPACs by Amrith Ramkumar (WSJ)

With prices and volatility both subsiding in popular “meme” stocks, investors looking to get ahead of the next pump are turning to SPACs for their big gains. [Link; paywall]

A GameStop Evangelist’s Videos Draw a Regulator’s Attention by Matthew Goldstein (NYT)

Massachusetts securities regulators are looking in to a trader at the center of the GameStop stocks urge for potential violations of supervisory protocols at his former company. [Link; soft paywall]

YouTuber David Dobrik Said He’s Lost $85,000 From Investing In GameStop Stock During The Hype by Tanya Chen (BuzzFeed)

A popular social media influencer reported that he lost $85,000 buying GameStop stock near the peak of the parabolic move in the stock that subsided over the past week. [Link]

Barstool founder Dave Portnoy sells GameStop, AMC shares at $700K loss by Thornton McEnery (NYP)

After collecting a big payday selling his company to Penn National, Dave Portnoy has taken to the markets, and in the latest round of fun turned himself into a GameStop bagholder. [Link; auto-playing video]

What Robinhood Traders Need to Know About Taxes by Laura Saunders (WSJ)

Active traders are going to face an absolute deluge of tax forms and actual levies, with the ten million other new retail traders who entered the market last year destined to learn hard lessons about both how much tax they owe and how big of a pain it is to file those taxes. [Link; paywall]

Back End & Brokering

GameStop Frenzy Puts Spotlight on Trading Giant Citadel Securities by Alexander Osipovich (WSJ)

Market maker and hedge fund Citadel has gotten lots of attention this week for their role in facilitating order flow from retail traders, and not all of it is positive. [Link; paywall]

Jane Street: the top Wall Street firm ‘no one’s heard of’ by Robin Wigglesworth (FT)

Another high frequency firm that makes markets specifically focused on ETFs has bene having a very good year and is also attracting an unusual amount of scrutiny. [Link; paywall]

Aligning with our community by Public (Medium)

In an effort to improve trust in their product, one of the free-to-trade brokerages has decided to stop accepting payment for order flow, and instead operate on a “tip” model. Good luck, we guess. [Link]

Cake

Why Do King Cakes Have Plastic Babies Hidden Inside? by Lindsey Liles (Garden & Gun)

If you’ve ever had a King Cake, you might have bitten in to a plastic baby. Here’s where that odd ingredient comes from. [Link]

Props

It’s flipping madness: ‘Startling’ amount bet on Super Bowl coin toss by David Purdom (ESPN)

Every year, millions of dollars are bet on a negative expected-value outcome that puzzles even the least rational among us; why are people paying as much as 5% of their bet on the outcome of a coin toss? [Link]

Crypto

Visa Signals Further Crypto Ambitions With API Pilot for Bank Customers to Buy Bitcoin by Nathan DiCamillo (Coindesk)

The mainstream payments giant is creating a new suite of APIs that allows banks to offer crypto products side-by-side with traditional financial services. [Link]

India plans to introduce law to ban Bitcoin, other private cryptocurrencies by Manish Singh (TechCrunch)

India is taking steps to ban crypto in the country, instead offering an official digital currency that it will roll out via new legislation later this year. [Link]

Tech Dystopia

There Are Spying Eyes Everywhere—and Now They Share a Brain by Arthur Holland Michel (Wired)

A Montreal company is attempting to put all surveillance techniques available to law enforcement into a single platform, offering a panopticon-like vision of the future. [Link; soft paywall]

Elon Musk Makes Characteristically Wild Debut on a Buzzy Social App Clubhouse by Reed Stevenson (Bloomberg)

The new conversation-sharing app Clubhouse featured a conversation with Tesla CEO Elon Musk this week, and it proved predictably wild with topics including bitcoin, Mars, Robinhood, aliens, monkey brains, and the COVID-19 vaccine. [Link; soft paywall]

A 25-Year-Old Bet Comes Due: Has Tech Destroyed Society? by Steven Levy (Wired)

A quarter century ago, an author and a journalist entered into a bet about the fate of society. While a winner has been declared, the victory was much narrower than might be expected. [Link]

Tech Utopia

The Environmental Upside of Modern Farming by Robert Paarlberg (WSJ)

If the world is going to feed its teeming billions into the 22^nd century, it’s going to need a lot of productivity from farms. The good news is that productivity is booming, with use of pesticides dropping 80% since their 1972 peak while water and energy use are both down over 40% on a per-bushel basis. [Link; soft paywall]

Hard Currency

Gold, silver coin demand surging, straining U.S. Mint’s capacity by Devika Krishna Kumar (Reuters)

Sales of gold coins rose 258% last year, with silver coin sales up 28% per data released by the US Mint this week, and heavy buying has continued since. [Link]

Essential Workers

Covid Wears On, Essential Workers Carry On: ‘Everybody Forgets That You’re Still on the Front Line’ by Jennifer Levitz, Valerie Bauerlein and Alejandro Lazo (WSJ)

The front lines and greatest sacrifices of the COVID pandemic aren’t always in ICUs but very often in jobs that simply have to be done to keep the wheels turning. [Link; paywall]

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Have a great weekend!

What a week.  Not just because the S&P 500 rebounded from last week’s dip to rally more than 4%, but also for the disparities in sector performance across different market caps.

The chart below shows sector performance for S&P 500 (large-cap) sectors this week.  Leading the market higher this week, Energy led the way with a gain of 8.3%, followed by Communication Services (+7.3%), Financials (+6.6%), and Consumer Discretionary (+6.0%). At the other end of the spectrum, Health Care was the only sector that didn’t rally more than 1%.

While large-cap Health Care was the worst performing sector this week, a number of individual stocks in the sector had phenomenal weeks.  The chart below shows the 25 top-performing Russell 3000 stocks this week. Of the 25 stocks listed, 17 come from the Health Care sector, including each of the top three and four of the top five!

The chart below shows the performance of small cap sectors this week shown in the same order as the sectors above.  While large-cap Health Care was the worst-performing sector of the week, in the small-cap space, Health Care was the top-performing sector!  Health Care had the largest disparity in terms of sector performance between large and small caps, other sectors that saw pretty sizable disparities were Technology, which barely outperformed in the large cap space but was the second best performing sector in the small cap space, Materials, and Industrials. It’s typically common for sector perofrmance to be similar across the market cap spectrum, but this week certainly proved to be an exception. Click here to view Bespoke’s premium membership options for our best research available.

This year’s Super Bowl will be a first for many different reasons.  It will be the first-ever game played in the home stadium of one of the teams playing.  It will be the first-ever game with a 43-year-old starting QB.  The age difference between the starting QBs will be the widest ever (18+ years). The game will not be played to a full stadium (attendance capped at 25K).  We could go on.  Another interesting aspect of this year’s game is that it will break the tie between the AFC and NFC for the number of championships won (27).  The last time the two conferences had an equal number of Super Bowl titles was back in 1990 after Super Bowl XXIV when each conference had 12.  The New York Giants broke that tie in 1991 when Scott Norwood went ‘wide ride’ to give the NFC its 7th straight and 13th total Super Bowl victory.  From there, the NFC continued its domination of the AFC (and the Bills) winning the next six championship games, including three against the Bills.

We’ve all heard of the Super Bowl market indicator which says that a win for the NFC bodes well for the equity market while an AFC victory is a bearish signal.  For years, there actually was a wide gap in performance for the market following wins by either conference in the past, but in recent years the disparity has narrowed.  In the 27 years where the AFC has won the Super Bowl, the S&P 500 averaged a rest of year gain of 6.9% with positive returns 70% of the time.  When the NFC wins, though, the S&P 500’s average rest of year performance has been a gain of 10.5% with positive returns more than 77% of the time.

When it comes to individual teams, 13 have won the Super Bowl more than once.  The two teams with the most victories are the Steelers and Patriots each of which has won the game six times.  The Dallas Cowboys often refer to themselves as ‘America’s Team’ but Pittsburgh is the “Stock Market’s Team”.  In the six years where the Steelers won the Super Bowl, the S&P 500 experienced positive returns for the remainder of the year every time for an average gain of 18.8%!  Market returns for the Patriots following their six victories have been a much more muted 4.6%, including a decline of more than 21% from the end of the team’s first victory in 2002.  The 49ers and the Broncos have ‘only’ won five and three Super Bowls, respectively, but following their victories, the S&P 500 has been up for the remainder of the year every time for an average gain of more than 20%!

So, what about this year’s teams?  The Chiefs have won the Super Bowl twice in their history, and the S&P 500 has averaged a rest of year gain of 8.1% following their victories.  While the S&P 500 was down for the remainder of the year after they won in 1970, the decline was less than 1%.  The one year the Chiefs made it to the championship but lost, the S&P 500 was up over 14% for the remainder of the year.

For the NFC, Tampa Bay’s one and only appearance in the Super Bowl was in 2003 (XXXVII).  They won that game, and the S&P 500’s rest of the year gain was over 29%.  Additionally, while they’re on a new team now, in the three Patriots victories where Tom Brady and Rob Gronkowski were both on the team, the S&P 500 was higher for the remainder of the year all three times for an average gain of 12.7%. Go Bucs! Click here to view Bespoke’s premium membership options for our best research available.

In spite of the continued craziness in the headlines over the past week, sentiment has seen little in the way of change.  AAII‘s weekly sentiment survey saw bullish sentiment fall just 0.3 percentage points to 37.4%. That is a third consecutive decline and leaves bullish sentiment at the lowest level since the end of October.

Bearish sentiment was also lower this week dropping to 35.6% compared to last week’s reading of 38.3% which was the highest level since early October.  That leaves bearish sentiment right in the middle of the range of the past year, still several percentage points below last year’s elevated levels and the more recent historically low readings.

The bigger decline in bearish sentiment relative to the move in bullish sentiment resulted in the bull-bear spread to move back into positive territory after briefly dipping to -0.6 last week; the first negative reading since mid-October.

Neutral sentiment picked up the losses rising to 27.1% from 24% last week. That 3.1 percentage point week over week increase only brings neutral sentiment back to similar levels to the end of 2020.

In another sentiment survey from Investor’s Intelligence, which surveys newsletter writers rather than individual investors, the readings were similar.  Bullish sentiment in this survey also came in at some of the lowest levels since the fall. At 57.8%, it was the first sub-60% reading since mid-November and the lowest reading since November 4th.  Bearish sentiment was slightly higher rising to 16.7% from 16.5% though it is still below levels from two weeks ago.  While these survey results still lean historically bullish with the bull-bear spread at 41.1—which is in the top decline of readings going back to the 1960s—a higher share of respondents did report that they are looking for a correction.  That reading climbed above 25% for the first time since the first week of November.  While that is far from a historically high reading (historical average of 25.77%), it did end a streak of consecutive readings below 25% at 12 weeks long.

Across the history of the survey, there have been 42 streaks of readings of “looking for a correction” below 25% that lasted for at least 12 consecutive weeks.  In the table below, we show the 14 of these instances that occurred without a prior occurrence in the past year. These streaks coming to an end have typically pointed to some short term weakness with the next month and 3 month periods averaging a decline.  For the one month period, returns have only been positive 30.77% of the time.  Six months later performance has leaned positive but underperforms the norm.  On the bright side, one year after these streaks come to an end performance has much more consistently been positive with slightly above-average returns. Click here to view Bespoke’s premium membership options for our best research available.

There was a lot to like in this morning’s jobless claims release.  For starters, claims beat expectations falling to 779K rather than the forecasted decline to only 830K.  Additionally, last week’s number was revised down by 35K to 812K compared to the original 847K number.  This week, claims fell for a third week in a row with the 33K decline bringing the total drop to 148K over the past three weeks since the high of 927K. While there is still plenty of room for further improvement given claims remain well above the pre-pandemic record high of 695K, at 779K claims are now at the lowest level since the last week of November’s level of 716K which was also the second-lowest reading of the pandemic behind November 6th’s 711K print.

On a non-seasonally adjusted basis, claims have also dropped sequentially for three weeks in a row.  Unadjusted claims have now fallen by nearly 300K since the high of 1.113 million in the second week of the year.  Now at 816.2K, non-adjusted claims are at the lowest level since the last week of November. As we have noted the past couple of weeks, falling claims are normal for this time of year with last week (the fourth week of the year) and the previous week (the third of the year) historically having seen claims lower week over week 90.74% and 100%, respectively, of the time all years since 1967.  Turning to the current week of the year, there is not as consistent of a trend as the past couple of weeks, but historically claims have moved lower more often than not.

Even including PUA claims, total initial jobless claims dropped this week.  Alongside the 23.535K decline in regular state claims, PUA claims fell by 54.68K. In total, this week saw 1.165 million claims between the two programs, down from 1.243 last week marking a continued return towards the low of just above 1 million at the end of October.

As for continuing claims which are lagged an additional week to initial claims, the declines keep coming.  Continuing claims totaled 4.592 million this week, down 193K from the prior week’s upwardly revised reading. Like initial jobless claims, that was better than the expected reading of 4.7 million and also set a new low for the pandemic.

Including all programs adds another week’s lag but for the week of January 15th, total claims across all programs declined to 17.87 million from the prior week’s spike higher to 18.359. Most programs contributed to that decline with the biggest contribution coming from the Pandemic Emergency Unemployment Compensation (PEUC) program which saw claims fall by 289.91K. Outside of the first week of the year when this program fell by over 1 million (likely due to benefits expiration at the end of 2020 and other discrepancies as a result of the timing of the spending bill) that 289.91K decline was the largest week over week drop on record. Despite that decline, a 197K uptick in the Extended Benefits program made for a new high in the extension programs’ share of total claims. Click here to view Bespoke’s premium membership options for our best research available.

As the S&P 500 (SPY) bounces back from last week’s declines, global equities are broadly doing the same. Glancing across the rest of the countries tracked in our Global Macro Dashboard, most countries have similarly risen over the past week with only Hong Kong (EWH), Mexico (EWW), Singapore (EWS), Switzerland (EWL), and the United Kingdom (EWU) lower over the past five days.  For the US, the rally over the past few days has left SPY within 1% of its 52-week/all-time high.

Like the US, there are several other country stock market ETFs that are also a few percentage points away from a new high, but only one, India (INDA), has reached a new 52 week high. China (MCHI) and Sweden (EWD), like SPY, are also within 1% of their highs. China is also the most overbought country ETF trading nearly 2 standard deviations above its 50-DMA.  While none are nearly as overbought as China, there are seven other countries that are also overbought including the US.  On the other hand, Brazil (EWZ), Mexico (EWW), and the UK (EWU) are all over 10% below their 52 week highs.  Granted, only EWW is currently oversold alongside Malaysia (EWM) and Spain (EWP), though EWM and EWP are close to no longer being oversold.  Click here to view Bespoke’s premium membership options for our best research available.

A couple of weeks ago in our Equity Market Pros and Cons report, we highlighted the chart below showing the S&P 500 over the past year and the various “acts” of sector rotation in those periods. Overall, the fact that various sectors have been participating at different stages of the rally has been a good sign for breadth. In the most recent act, the leaders have been sectors like Energy, Financials, and Tech which are the three top-performing sectors.  On the other hand, Real Estate, Utilities, and Consumer Staples have been some of the worst-performing sectors.

But looking at the relative strength charts of the eleven sectors versus the S&P 500 over the past year, there have been some reversals recently, meaning some of the trends that have been in place over the past few months are turning a corner.  For example, the relative strength lines of Energy and Financials—the two best performing sectors since November—have generally been in uptrends during the current “act” meaning they have outperformed the broader S&P 500. But in the past couple of weeks, the relative strength lines of both Energy and Financials have broken those uptrends. The Industrials sector has seen the same play out while the Materials sector is sitting right at the bottom of its multi-month uptrend.

On the other hand, Technology—which has been the third best performing sector—has seen its relative strength line make a break higher alongside Communication Services.  While a less recent development, Consumer Discretionary has also seen its relative strength line resume its uptrend. Perhaps more interestingly, some defensive sectors like Real Estate and to a lesser degree Utilities have been the laggards of the current act, but have seen their relative strength lines turn higher recently.  For the former, this recent uptick has broken the past year’s downtrend. Granted, the same trends are still very much in place for the other two defensives: Consumer Staples and Health Care.  Click here to view Bespoke’s premium membership options for our best research available.