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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Pandemic News

Sanofi suffers major setback in development of a Covid-19 vaccine by Helen Branswell (StatNews)

Major global vaccine player Sanofi, who has partnered with GlaxoSmithKline for its COVID vaccine, has had to re-start its Phase 2 trials thanks to a fault in some of the ingredients it used in earlier iterations of its inoculation. [Link]

Hundreds ill, 1 dead due to unidentified illness in India (AP)

A mystery illness has been reported in the Indian state of Andhra Pradesh. While the pathogen has not been confirmed and could be driven by environmental factors like chemical poisoning, the sudden spate of illnesses still brings grim recall of the early days of the COVID pandemic. [Link]

Desperate NYC workers using LIRR, cars as quiet and cheap office spaces by Lambeth Hochwald (NYP)

With offices and coworking spaces closed, some New Yorkers who are desperate to get out of the house and get some work done have been turning to an unusual source of productive zen. [Link; auto-playing video]

Investing

The valuation warning signs for stock markets by Ian Harnett (FT)

Current valuations are consistent with low forward returns over the subsequent decade, even if short-term returns don’t show much correlation to the elevated P/E ratio. [Link; paywall]

Grantham stumbles on $200m profit after Spac swoop on battery maker by Robin Wigglesworth (FT)

A $12.5mm investment seven years ago means a $200mm payday for investor Jeremy Grantham, who is now semi-retired and enjoying the proceeds of a special purpose acquisition company merger. [Link; paywall]

Social Media

Facebook Gets Paid by Craig Silverman and Ryan Mac (BuzzFeed)

Black-box algorithms have been generating perverse – or even perverted – outcomes, but outcomes that mean massive earnings for the world’s largest social media network. [Link]

Weird Markets

The Essex Boys: How Nine Traders Hit a Gusher With Negative Oil by Liam Vaughan, Kit Chellel, and Benjamin Bain (Bloomberg)

A small group of independent traders based in Essex made almost half a billion dollars on the shocking plunge into negative territory for oil futures back in April. [Link; soft paywall]

How Come the Mets Gave a Major League Deal to a Lifetime Minor Leaguer? by Tom Verducci (SI)

A journeyman minor leaguer parlayed some time with the Tampa Bay Devil Rays into a large major league deal, an unusual but not entirely irrational shift in his value as a ballplayer. [Link; auto-playing video]

Antiques

Cheers! Or not: ‘Scandalous’ 1st Christmas card up for sale by William J. Kole (AP)

Christmas Cards have only been commercially printed since 1843, and the first one is now up for auction. It’s expected to get anywhere from $6,000 to $11,000 at auction. [Link]

Politics

The Places That Had the Biggest Swings Toward and Against Trump by Jed Kolko and Toni Monkovic (NYT)

A data-intensive analysis of county-level vote data that shows the big trends from the 2020 election: a small decline in polarization, large metropolitan areas swinging against Republicans, and Latino voters moving towards the outgoing President. [Link; soft paywall]

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Have a great weekend!

It has been a big week for IPOs with DoorDash (DASH) and Airbnb (ABNB) both hitting the secondary market.  These two stocks saw massive first-day gains of 86% and 113%, respectively. Generally speaking with the two aforementioned stocks as a case study, recent IPOs have been welcomed with open arms. As a result, the IPO ETF (IPO) has seen a sizeable rally having gained over 30% since the low at the end of October.  While neither DoorDash nor Airbnb are current holdings of this ETF, this week saw some volatility with a 3% drop on the day of DoorDash’s debut and a 2.5% rally yesterday when Airbnb debuted. IPO currently sits just off its highs after the past month and a half’s rally, but that is at some of the most overbought levels of the past five years as shown in the second chart below.

Relative to the S&P 500 (SPY), IPOs have seen massive outperformance since the bear market lows.  In the chart below we show the performance of the Renaissance IPO ETF (IPO) versus the S&P 500 (SPY) over the past five years.  From 2016 through the pandemic lows in March, these two tracked each other very closely, but IPO has skyrocketed versus SPY over the last nine months.  Click here to view Bespoke’s premium membership options for our best research available.

The Nasdaq 100 finally made a new high on Tuesday before pulling back yesterday, but in the run-up to new highs in the post-election rally, it hasn’t been the same old crew of stocks pushing the index higher.  While the Nasdaq 100 is up about 12.5% since the election, thirteen stocks are up by more than twice the amount of the index itself.  Leading the way higher, Moderna (MRNA) is up over 100% after positive news regarding its vaccine.  After MRNA, shares of Pinduoduo (PDD), a Chinese e-commerce play, have rallied more the 50%, rising from $97.72 up to $154.00.  Tesla (TSLA) rounds out the top three with a gain of 47% in just the last five weeks.  The next two stocks on the list – Applied Materials (AMAT) and Micron (MU) – can hardly be considered emerging stocks.  In addition to those two stocks from the semiconductor sector, three others from the sector made the cut (LRCX. MCHP, and QCOM) as chips have been red-hot.

At the bottom of the table, we have also included the performance of the five mega-cap stocks of the Nasdaq 100.  While all five stocks outperformed for much of 2020, not a single one of them is outperforming the Nasdaq 100 since Election Day, and only Apple (AAPL) is anywhere close to matching the performance of the index itself.

The chart below shows the performance of an equally-weighted basket of the five mega-cap stocks over the last year.  From 9/2 to 9/23, this basket of stocks pulled back more than 16%, and while it has been steadily grinding higher in the eleven weeks since that low, up until this point, the prior highs from September haven’t even come into play.  Click here to view Bespoke’s premium membership options and a free trial to our best research available.

For the third week in a row, just under half of the respondents to the weekly AAII sentiment survey reported as bullish.  This week’s bullish sentiment reading came in at 48.06%, which was down just slightly from 49.07% last week. While lower in the past week, bullish sentiment remains elevated in the top decile of readings over the past decade.  Granted, it is also still below the high of 55.84% from November 12th. Similarly, the Investor Intelligence survey of equity newsletter writers also saw bullish sentiment drop slightly, falling from 64.7% to 64.4%.  But again just like the AAII survey, that is a historically elevated level in the top 3% of all readings since 1963.

With bullish sentiment lower, a higher percentage of investors reported as bearish. Whereas last week saw bearish sentiment fall to 22.66%, the lowest level since the first week of 2020, this week bearish sentiment rose 4.2 percentage points to 26.86%.  That is still below the reading of 27.47% from the last week of November and at the low end of the past few years’ range. In terms of bearish sentiment, the Investors Intelligence survey is again echoing these results. This survey saw bearish sentiment rise 0.1 percentage points to 16.8%.

Overall, sentiment remains heavily in favor of bulls. As shown below, for both the AAII and Investors Intelligence surveys, the bull-bear spreads are at historically high levels.Click here to view Bespoke’s premium membership options for our best research available.

Over the past few weeks, initial jobless claims have seen a subtle drift higher though last week saw a return back towards the lows of the pandemic.  This week the rise in claims resumed.  Claims were expected to rise once again from 712K up to 725K, but the increase was far larger than expected with an increase to 853K. Last week’s print was also revised up by 4K to 716K.  Back above 850K, this week’s initial jobless claims number was the highest since the week of September 18th.  Meanwhile, the week over week increase of 137K was even more notable.  Topping the 133K increase from mid-August, it was the largest uptick since the 3.56 million spike back in the last week of March.

Taking a deeper dive into the numbers, a week over week increase in claims could be observed across a vast majority of the nation as the only states and territories to report declines were Alabama, Louisiana, Kentucky, Michigan, Oregon, and the Virgin Islands.  The states that reported the largest increases include some of the most populous like California (+47.454K), Illinois (+31.468K), Texas (+19.871K), and New York (+17.528K). Again, they are some of the most populated states, but these four together accounted for more than half of the nation’s overall increase.

On a non-seasonally adjusted basis, the number was even higher at 947.5K.  As we have been highlighting over the past couple of months, a seasonal drift higher is the norm for this time of year. For example, historically, the current week of the year (49th week) has seen claims rise WoW 81.5% of the time with the average size of that increase 82.15K, but this week’s increase was far larger at 229K. That brings claims to the highest level since the final week of July while the WoW uptick was the largest since the massive increases in March.

With the addition of the Pandemic Unemployment Assistance (PUA) program, on a combined basis, claims are still at their highest level since the week of September 18th, totaling 1.375 million this week versus 1.443 million back in September. Both regular state claims and PUA claims experienced significant upticks.  For PUA claims, the 139.38K increase week over week was the largest increase since a 140.19K climb during the last week of August. In other words, the significant rise in claims this week has been geographically broad and across multiple programs.

Given continuing claims are lagged an additional week, that surge in initial claims is unrepresented in the most recent continuing claims print.  Despite this, the number for regular state claims for the final week of November nonetheless was disappointing. Seasonally adjusted continuing claims rose to 5.757 million from 5.52 million. That was also worse than the expected decline to 5.21 million.  While higher, continuing claims are not at any sort of multi-month high like initial claims.  This week’s print of 5.757 million is actually still below the 6+ million levels from just two weeks prior. So while claims disappointed, they were still at healthier levels than the past several months.

Including continuing claims across all programs adds yet another week’s lag to the data meaning the most recent data is through the week of November 20th and again would not reflect the most recent uptick in initial claims.  For the first time since the early days of the pandemic (the week of April 17th), claims across all programs fell below 20 million.  Regular state claims (-683K) and PUA claims (-313.7K) drove the bulk of the decline, but every other program also fell.  Programs for extensions like PEUC claims and Extended Benefits both improved on the week, but were still above levels from the week prior.  As a result of the moves, extension programs’ share of total continuing claims continued to rise through the week of November 20th. PEUC and Extended Benefits together accounted for 27% of total continuing claims, a pandemic high. Click here to view Bespoke’s premium membership options for our best research available.

It’s been quite a ride for small-cap stocks this year.  The chart below shows the relative strength of the Russell 2000 (small caps) versus the S&P 500 (large caps) since the start of 2018.  Heading into the pandemic, underperformance on the part of small caps was nothing new, but just as the pandemic accelerated a lot of trends already in place, it also exacerbated the underperformance of the small caps.  From the S&P 500’s high on 2/19, small caps cratered on both an absolute and relative basis.  By March 18th, the Russell 2000 bottomed in terms of its performance relative to the S&P 500, but the downside move which lasted only a month took a lot longer in the opposite direction as it wasn’t until eight months later that the relative strength of the Russell 2000 versus the S&P 500 rebounded back to its level from 2/19.  Since erasing all of its post-2/19 losses, though, small caps have continued to outperform.

In terms of the sectors driving the rally in small caps, there have been some big moves, and it hasn’t necessarily been the same sectors that have performed the best in the large-cap space.  The table below shows the performance of S&P 500 and Russell 2000 sectors since the Russell 2000’s relative strength versus the S&P 500 bottomed on 3/18.  First of all, the only small-cap sector which has outperformed its large-cap peer is Communication Services, whereas Consumer Discretionary, Energy, and Health Care have all outperformed their large-cap peers by more than 75 percentage points.

Starting with the sectors whose performance ranks have been similar in both indices, Consumer Discretionary has been the top-performing sector regardless of market cap while Utilities has been the worst-performing sector in both the S&P 500 and Russell 2000. Other sectors that have similar performance ranks within both market cap groups are Industrials, Materials, and Real Estate.  In terms of the differences between market caps, the three that stand out the most are Communication Services (6th best in S&P 500, 10th best in Russell 2000), Health Care (8th S&P 500, 4th in Russell 2000), and Consumer Staples (10th in S&P 500 and 7th in Russell 2000).  When it comes to sector allocation, market cap is often overlooked, but within the small and large-cap spaces, sector leadership often varies widely.  Start a two-week free trial to Bespoke Institutional for instant access to all of our research and interactive tools.