Today’s release of the December Small Business Optimism Index from the NFIB saw a large drop as the index dropped from 101.4 to 95.9.  After a sharp drop in the wake of the COVID outbreak, the index bounced back nicely but now looks like it’s really rolling over.

Not only was this month’s headline index weak, but it caught economists completely off guard. While the index fell to 95.9, economists were expecting a drop to 100.2.  That 4.3 spread between the actual and expected reading was the biggest miss relative to expectations in more than five years (July 2015) and was the third weakest reading relative to expectations since the December 2012 report.

Given the big drop in the headline index and the fact that it was so weak relative to expectations, should we be concerned about a double-dip?  As an investor, we should always be worried about what could go wrong, but in the case of this report, you can probably wait for further confirmation from other data.  The reason for the skepticism is that you could argue that politics plays a role in this report.  To illustrate this, we would note that going back to 2010 (as far back as we have data) and right up through Election Day 2016, the NFIB only topped expectations 42% of the time.  Following Trump’s election in 2016, though, this index surged and has since topped expectations 63% of the time.  Since Election Day 2020, though, the headline index has now missed expectations three times.

From a longer-term perspective, dating back to 1974, the average reading of the NFIB Small Business Index during Republican administrations has been 100.1 while the average level under Democratic Presidents has been 96.2. Now, that would make sense if the economy was also in a recession more often in those periods, but over that same span, even though the percentages are low for both political parties (<20%), the economy has actually been in a recession a higher percentage of the time during Republican administrations than it has in Democratic administrations.

The lesson to take from all this is that even if it’s often hard to separate when it comes to business or investing (or a lot of other aspects of our lives for that matter), it’s usually best to leave politics outside. Click here to view Bespoke’s premium membership options for our best analysis available.

Over the past year, US equities—proxied by the S&P 500 (SPY)—have consistently outperformed global equities more broadly. As shown below, over the past year the S&P 500 (SPY) has risen just over 16%. That compares to 11.26% for the rest of the world as proxied by the Vanguard FTSE All-World ex US ETF (VEU).  Breaking that down a bit further by developed and emerging markets, US equities have outpaced both emerging and other developed markets.  While emerging markets (SPEM) are right on the heels of the US with just under a 14.78% gain, developed markets (SPDW) have lagged with just a 10.56% gain. So far in 2021, though, the rest of the world has been outperforming the US.  Whereas SPY has risen around 1% YTD, VEU is up almost 3 times that.  Emerging markets in particular have shown the greatest degree of strength currently having risen 3.87%. Meanwhile, SPDW has gained less (2.7%), though, it is still outperforming the US.

In the charts below, we show the ratio of SPY to these other ETFs.  A rising line would indicate that the US is outperforming these other measures of global equities while a downward trending line indicates underperformance of SPY.  As shown, the longer-term trend has pretty consistently been US outperformance over the past decade but that has faltered at the tail end of 2020 and into 2021.  In the case of emerging markets, the line has been on the decline throughout the second half of 2020 as the ratio has hit its lowest level in a year in the past week. The S&P 500’s underperformance relative to other developed markets (SPDW) has been more recent as that line peaked in early September but the trend remains the same over the past few months with SPY weaker than global equities more broadly. That is further exemplified by the recent downtrend of SPY versus the All World ex US ETF (VEU). Click here to view Bespoke’s premium membership options for our best research available.

On a day when major US equity indices were lower across the board, the homebuilder group staged a nice rally.  Below we provide a check-up on the group.

From the March lows until the October high, the iShares Home Construction ETF (ITB) rallied over 170%, but since that high, the ETF has been in consolidation.  As shown below, ITB has been fluctuating around its 50-DMA for the past few months making some higher lows and lower highs in the process.  The past few sessions have seen some more moves above and below the 50-day with today’s 1.8% gain currently bringing it back above and positive on a year to date basis. Currently, ITB is now 6.23% below its October 15th closing high.

As for the individual homebuilder stocks, below we show the constituents of the S&P 1500 Homebuilders index and the story is mostly the same.  After surging from the March lows through October, most of these stocks are down double digits from their respective 52-week highs.  Similar to the FAANG names that have mostly traded sideways for the past few months, the homebuilders have quietly been experiencing consolidation as well.  Click here to view Bespoke’s premium membership options for our best research available.

As we noted in Friday’s Bespoke Report, through the first week of the year the best performing sectors were not what would have been expected.  While the S&P 500 rose 1.83% through the first five trading days of the year, the Energy sector rose 9.31%. That is the sector’s best five-day start to a year since at least 1990.  Materials was the next best sector notching a 5.68% gain. That is the sector’s second-best start to a year since 1999 when it rose 7.18%.  Financials, Consumer Discretionary, and Health Care were also some of the better-performing sectors last week. Of these, there have been even better starts in recent years, although for Financials this year’s start was the best in a decade. While these sectors all led last week, sectors that had been leaders in the past year like Tech and Communication Services underperformed the S&P 500. That begs the question of how these sectors hold up throughout the rest of the year.

As shown in the table above, the best performers at the start of the year have typically traded higher through year’s end, though, they do not tend to remain the best performing sectors YTD come December as shown in the table below.  Over the past three decades, there have only been five years in which the best performing sector in the first week of trading ended up being the best performing sector from the end of the first week through the end of the year: 1993, 1994, 1998, 1999, and 2003. Each of those years, that sector was also the same: Tech.  In other words, outperformance at the start of a year does not necessarily predicate outperformance for the full year. Click here to view Bespoke’s premium membership options for our best research available.

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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Autos

Rivian Is Close to Raising Funds at $25 Billion Valuation by Katie Roof and Edward Ludlow (Bloomberg)

The electric truck company is adding to its total capital raise by “several billion”, bringing total to-date capital raised to at least $8bn; deliveries on its trucks and SUVs are planned to start this year. [Link; soft paywall]

Honda cuts car production on massive chip shortage by Ryosuke Hanada (Nikkei)

Semiconductors are in short supply for the global auto industry, with surging demands for chips used in computers and phones leading to a supply bottleneck for other industries like autos. [Link]

Renewables

The New Green Energy Giants Challenging Exxon and BP by Katherine Blunt and Sarah McFarlane (WSJ)

Utilities based in Florida, Spain, and Italy have become monsters in the world of green energy, going in many ways unnoticed as they accrue tens of billions in capital investment in solar and wind energy projects across the world. [Link; paywall]

Vaccine Rollouts

NC governor activates National Guard to help with COVID vaccine distribution by Adam Wagner and Martha Quillin (News & Observer)

Concerned that North Carolina may be falling behind on vaccinations has lead Governor Roy Cooper to activate the state’s National Guard in order to assist local health departments rolling out access to the inoculations. [Link]

Why West Virginia’s Winning The Race To Get COVID-19 Vaccine Into Arms by Yuki Noguchi (NPR)

A focus on local pharmacies instead of national chains has let West Viriginia administer a huge number of vaccines in a very short amount of time. [Link]

66% of New York City’s Vaccine Doses Sit Unused as Virus Numbers Soar by Joseph Goldstein (NYT)

As a result of Governor Cuomo’s decision to aggressively prioritize vaccine access with huge penalties attached, there are huge numbers of unused vaccines sitting in storage, unused. [Link; soft paywall]

Policy

Most Second Stimulus Payments Reach Household Bank Accounts by Richard Rubin and Laura Saunders (WSJ)

$600 relief payments from the US Treasury have been two-thirds paid out already with more than $112bn hitting consumers accounts over the last week and a half. [Link; paywall]

Comparison of Utilization, Costs, and Quality of Medicaid vs Subsidized Private Health Insurance for Low-Income Adults by Heidi Allen, Sarah H. Gordon, and Dennis Lee (JAMA Network)

In a study comparing the health care received by Marketplace (ACA exchange) and Medicaid recipients, Marketplace users paid 83% more with mixed impact on quality of care and a reduced number of emergency department visits. [Link]

Labor Movement

Google workers launch unconventional union with help of Communications Workers of America by Nitasha Tiku (WaPo)

Tech worker organizing has taken the next step with more than two hundred Google employees launching a union; notably, that union will not seek ratification with a federal agency and therefore won’t have collective bargaining rights. [Link; soft paywall]

Living

Amazon Pledging More Than $2 Billion for Affordable Housing in Three Hub Cities by Nicole Friedman (WSJ)

Amazon has said it will use low-cost loans to build or preserve affordable housing in areas that it has a tech hub presence in. [Link; paywall]

United Van Lines’ National Migration Study Reveals Where and Why Americans Moved in 2020 (United Van Lines)

A fascinating review of where movers are flowing to and from around the country with states like South Carolina, Oregon, South Dakota, and Arizona seeing the biggest inflows while New York, Illinois, Connecticut, and California seeing the biggest outflows. [Link]

Hawaii’s Beaches Are Disappearing by Ash Ngu and Sophie Cocke (ProPublica)

Coastal seawalls are key drivers of coastal erosion, with waves that hit them and rebound dragging sand out to sea instead of washing over it as on a natural beach. The result is that Hawaii’s legendary sands are disappearing. [Link]

Novel Structures

A Tiny Hedge Fund Just Made History by Turning Into an ETF by Katherine Greifeld (Bloomberg)

A Nashville-based hedge fund with $3mm in assets decided to convert its tech-oriented portfolio into an exchange traded fund, the first such transaction in the history of the investment management industry. [Link]

Food

To Make Japan’s Original Sushi, First Age Fish for Several Months by Clarissa Wei (Atlas Obscura)

A fascinating history of the now-ubiquitous raw fish which was originally a cured product that fermented in barrels or other vehicles for months or even years before being served. [Link]

Security

FBI Questioned A Michigan Senate Staffer After Zoom Call About Banning Tear Gas by Alice Speri and Sam Biddle (The Intercept)

A legislative strategy call related to a proposed bill in Michigan was somehow put on the FBI’s radar, either through a report by someone that overheard it or more concerning means. [Link]

Pro-Trump Mob Livestreamed Its Rampage, and Made Money Doing It by Kellen Browning and Taylor Lorenz (NYT)

An alternative to classic social media networks called Dlive offers users the ability to tip livestreamers, and as a mob wrecked the Capitol earlier this week, that’s just what they did. [Link; soft paywall]

Modern Families

The Sperm Kings Have a Problem: Too Much Demand by Nellie Bowles (NYT)

Sperm donors who are most in-demand are having a hard time keeping up with the demand for their product amidst a dramatic uptick in the number of people who are looking for babies. [Link; soft paywall]

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Have a great weekend!

As we noted in yesterday’s Sector Snapshot, cyclical sectors are leading the way higher in 2021 as Energy, Materials, and Financials are all up around 5% or more compared to the S&P 500’s gain of a more modest 1.65% YTD.  That outperformance has led to some sharp moves in the relative strength lines of several sectors. As shown below, the Materials sector and Financials have both seen sharp moves higher in their relative strength lines versus the S&P 500.  For Materials, this has been part of a broader trend of outperformance (upward trending line) that has been in place over the past year. For Financials, prior to this most recent upswing, the line first began to trend higher in the late Fall but then took some pause in December. Meanwhile, Consumer Discretionary, Energy, Health Care, and Industrials have also made moves higher, albeit more modest than those of Materials and Financials.

As for the other sectors’ relative strength lines, there have been some sharp moves in the opposite direction.  Starting with what had been market leaders at various points of the past year, Communication Services and Technology are perhaps some of the most notable negative reversals.  For the former, the relative strength line has generally moved sideways over the past year, but since mid-December, the line has been on the decline with one of the most dramatic legs lower taking place in the past week. Tech was a consistent outperformer in the first half of 2020, but since the summer that outperformance has faltered.  The sector’s relative strength line peaked and has been trending sideways since the start of September and the move so far in 2021 has brought the line down towards the low end of the past few months’ range. As for other sectors, Real Estate, Utilities, and Consumer Staples have been trending lower for the better portion of the past year, but with cyclical sectors flying, the relative strength lines of these more defensive sectors have made new lows this week in dramatic fashion.  Click here to view Bespoke’s premium membership options for our best research available.

Several measures of market breadth have been showing strength recently as we noted in yesterday’s Sector Snapshot. Over 80% of S&P 500 stocks trade above their 50-DMAs, more than half are overbought (at least two standard deviations above its 50-DMA), and over 20% of S&P 500 stocks reached new 52-week highs yesterday.  Additionally, shorter-term breadth as measured by the 10-day advance-decline line has also been strong.  Pretty much across the board, every sector’s 10-day A/D line has tipped into overbought levels. That doesn’t apply to only Consumer Staples and Real Estate which have more modest readings, though breadth for these sectors has still been positive recently.  At the moment, Materials, Health Care, and Financials are the most overbought sectors by this measure.  Overall, the sharp moves higher in the 10-day A/D lines does flash a warning sign for the very near term that things are running a bit hot.

As previously mentioned, several sectors are reaching new 52-week highs, and given breadth has been strong to match, cumulative advance-decline lines are confirming the moves higher.  As shown in the charts below, Consumer Discretionary, Health Care, Industrials, Materials, as well as the broader S&P 500 all closed at 52-week highs last week and so too did those sectors’ cumulative A/D lines.  While price did not close at new highs, Tech, Financials, and Communication Services also all saw new highs in their cumulative AD lines.  Click here to view Bespoke’s premium membership options for our best research available.

The average stock in the Russell 3,000 is already up 5.24% year-to-date after just four trading days.  And to think, major indices were down ~1% on the first trading day of the year this past Monday.  Below we highlight the average YTD performance of stocks by sector in the Russell 3,000.  Remember, the Russell 3,000 contains large-caps, mid-caps, and small-caps, and it covers roughly 98.5% of all US-traded market cap.  As shown, Energy stocks have jumped out to the strongest start to the year with an average gain of 13.26%.  Materials rank second with a gain of 9.1%, and then Industrials, Financials, Health Care, and Consumer Discretionary are all bunched together with gains between 5% and 6%.  Technology stocks — last year’s big leaders — are ‘only’ up 4.34% on average so far in 2021, while the Real Estate sector is the only one that has averaged declines.  Click here to view Bespoke’s premium membership options for our best research available.

Looking at Industry Groups, while Technology as a whole is underperforming a bit, the Semiconductor group (which are part of the Tech sector) is up big with average YTD gains of 9.4%.  Autos are also performing very well with a gain of 9.2%.  Thank you Tesla (TSLA).

There are already more than 600 stocks in the Russell 3,000 that are up more than 10% year-to-date.  That represents 20% of the index.

Below is a look at the top-performing stocks so far in 2021.  Usually, it takes weeks or months to see YTD gains like these, but we’ve gotten here in just four trading days.  3D Systems (DDD) ranks first with a gain of 119%, followed by Atomera (ATOM) at 70%, ViewRay (VRAY) at 59.5%, Arcturus (ARCT) at 54%, and Akerna (KERN) at 52%.  We don’t fault you if you have never heard of these names!