After two months of some of the largest gains to small business confidence on record, NFIB’s Small Business Optimism index pulled back slightly in July. The index fell 1.8 points to 98.8 which was also below expectations of a reading of 100.5. While lower sequentially and still well off the highs from prior to the pandemic, July’s level of 98.8 was less than half a point from the historic average for small business optimism of 98.4.

Overall, breadth was very mixed in the July report.  Of the ten components of the headline index, four fell, one was unchanged and the other five rose.  As the pandemic drags on, the most glaring decline weighing on the headline number was for expectations of improvements in the economy.  Fewer companies reported now as a good time to expand (that index fell to 11 from 13 in June) and a net percentage of 25% expect the economy to improve compared to 39% in June.  The 14 point decline is tied with an identical decline in August of 2011 for the seventh-largest MoM decline on record for that index, but it only leaves that component in the 81st percentile of all readings. In other words, small businesses are less optimistic for the future than they were in June, but on net are still expecting the economy to improve.  That can be seen through hiring plans as a higher share plan to increase employment and increase capital expenditures with those indices rising 2 points and 4 points, respectively. On the other hand, fewer businesses plan to increase inventories as those expecting higher sales remains muted albeit improving. That can also be seen through the 3 point rise in the index for actual earnings changes. Fewer businesses were also reporting weak sales as the most pressing issue for business.

Additionally, although they are not inputs to the headline index, a record low of 26 percent reported borrowing on a regular basis, though, the cause of that does not appear to be due to credit availability. The index for credit availability was slightly higher in July and remains in the top 5% of all readings. The most important issues echo this as only 1% reported financials and interest rates to be the biggest issue; unchanged from last month.  The biggest issue for businesses remains the quality of labor. That index rose from 19 in June to 21 in July.  Click here to view Bespoke’s premium membership options for our best research available.

For most of us, Monday is the worst day of the week, but for the Nasdaq lately, it doesn’t get any better than Monday.  The chart below shows the Nasdaq’s performance on Mondays since the closing low for the S&P 500 on 3/23.  On that day, the Nasdaq fell a pedestrian 0.3%.  Since then, Mondays have been a blockbuster.  In the 19 weeks between 3/23 and today, the Nasdaq’s average gain on Mondays (or Tuesday if Monday was a holiday) has been +1.4% with only two declines.  Not only that, but on 13 of those Mondays, the Nasdaq has been up over 1%, including eight of the last nine heading into this week.  On a cumulative basis, half of the Nasdaq’s entire gain off of the March 23rd lows was from Mondays alone.  With the Nasdaq down half of a percent so far today, the magnitude of the decline isn’t all that notable but relative to other Mondays recently, it stands out like a sore thumb.  Click here to view Bespoke’s premium membership options for our best research available.

Over the last few days, we’ve been seeing a moderate rotation in the market as red-hot growth stocks sell-off and investors shift into other areas of the market that have been lagging.  To highlight this, the table below highlights 24 companies in the Russell 3,000 with market caps of more than $1 billion that traded at a 52-week high within the last month but are currently down more than 20% from that high. The vast majority of these stocks are names that investors haven’t been able to get enough of in 2020 but now appear to have had their fill.

Topping the list of these reversals is Eastman Kodak (KODK).  On 7/29, the stock surged to a 52-week high of $60.00 after being awarded a questionable government contract to domestically produce components for prescription drugs.  With the SEC and government agency that originally awarded the contract now looking into stock option awards at the company just before it was announced, the stock has pulled back sharply and is now down over 80% from its high less than two weeks ago.

While KODK is more of a unique example, other names on the list are primarily growth or health care stocks that have benefited from the COVID outbreak. However, now that signs suggest the summer wave in the south has crested, investors appear to be taking some profits.  Shares of Vaxart (VXRT) hit a high of $17.49 on July 14th but have since lost nearly half of their value and trade back in the single-digits.  Additionally, Bloom Energy (BE), 1Life Healthcare (ONEM), and Bioxcel Therapeutics (BTAI) have all lost more than a third of their value.

In terms of market cap, most of the names listed are on the small side, but Tesla (TSLA) is a notable exception as it is now just over 20% below its 52-week high on 7/13.  Other relatively large companies on the list include Moderna (MRNA), Citrix Systems (CTXS), Teladoc (TDOC), and Livongo (LVGO).  TDOC and LVGO both hit all-time highs last week but after announcing a mostly stock merger last Wednesday, both have lost nearly a quarter of their value.

While all of the stocks listed below have seen sharp pullbacks in the last several days, a little perspective is in order.  Of the 24 names listed, the average YTD change even after the declines has been a gain of 219.7% (median: +94.6%).  Only two of the stocks shown (New Relic- NEWR and Sonos- SONO) are down YTD, and half of them have at least doubled and in many cases much more.  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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Policy Research

California Unemployment Insurance Claims During the COVID-19 Pandemic by Thomas J. Hedin, Geoffrey Schnorr and Till von Wachter (California Policy Lab)

Some startling findings on the nature of jobless claims filers in California: half are re-opened claims, driven by new rounds of firings or hours reduction. One-third of California’s workforce has filed for UI benefits since the start of mid-March. [Link]

Do Unemployment Insurance Benefits Improve Match Quality? Evidence from Recent U.S. Recessions by Ammar Farooq, Adriana D. Kugler, and Umberto Muratori (NBER)

New research argues that more generous UI benefits allow workers to find jobs better-suited to their skills, supporting long-term income and productivity with extra benefits for women, non-white, and lower-education workers. [Link]

The Gulf Between Republicans and Democrats on Coronavirus Aid, in 9 Charts by Alicia Parlapiano (NYT)

A helpful rundown of the priorities each party has in their proposed new round of relief from the COVID shock. [Link; soft paywall]

Investing

With Biotech Stocks, Investors Love the Thrill of the Chase by Gregory Zuckerman and Michael Wursthorn (WSJ)

Risk-seeking individual investors have turned to vaccine plays as a way to scratch their itch for big payoffs and high uncertainty. [Link; paywall]

A Blank-Check ETF May Be Coming After the Surge in SPACs by Katherine Greifeld (Bloomberg)

With the popularity of so-called “blank-check” special purpose acquisition companies (which raise capital then use it to buy out a private company), there is of course an ETF set to track the broad space. [Link; soft paywall]

Political Donations

Schwarzman’s Wallet Props Up Wall Street Elite’s Giving to Trump by Shahien Nasiripour and Hema Parmar (Bloomberg)

The CEO of PE shop Blackstone is accounting for three-quarters of every dollar that Wall Street donates to the President’s re-election campaign. Excluding Schwarzman, donations are down almost 70% versus 2016. [Link; soft paywall]

COVID

Some scientists are taking a DIY coronavirus vaccine, and nobody knows if it’s legal or if it works by Antonio Regalado (MIT Technology Review)

In an effort to develop immunity ahead of the commercially viable alternative, some are taking a basically homemade vaccine that sits on at best legally dubious grounds. [Link; soft paywall]

Agriculture

Wheat yield potential in controlled-environment vertical farms by Senthold Asseng et al (PNAS)

A new study of vertical farming, whereby crops are grown indoors in layers, can produce radically higher crop yields than any current farming technique, creating more calories with fewer resoruces. [Link]

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Have a great weekend!

As mentioned in a prior post, in the past week the S&P 500 has moved within 2% of its 2/19 high, but at the same time, less than a quarter of AAII respondents are optimistic for the future of stocks over the next six months.  That begs the question- if there have been past times that sentiment and price action have been so detached from one another. Since the start of the AAII survey in 1987, there have been 10 periods (including the current one) in which the S&P 500 was within 2% of an all-time high but bullish sentiment was less than 25% without another occurrence in the prior three months.  The most recent prior occurrence was not even a full year ago. Back in October, sentiment was only slightly higher as the S&P 500 was 1.84% from its all-time high.  Prior to that, there were some scattered instances throughout 2013, 2015, and 2016 but before that, you would have to go back to 1993 to find another similar period.  The one occurrence in 2013 stands out as it was both the lowest sentiment reading of these prior occurrences and the only one that occurred with the S&P 500 right at an all-time high.

As for where things stand after such instances, sentiment has tended to reverse higher in the following six months as the S&P 500 has tended to move higher.  The S&P 500 has actually tended towards better than average returns over the next three months, although performance six months out has been modestly worse than average, even as it has been higher more often than not. Additionally, as shown in the second chart below, of the more recent occurrences of the past decade, they haven’t marked any major top or bottom for the S&P 500 with occurrences clustered both coming off of lows and in the middle of longer-term uptrends. Click here to view Bespoke’s premium membership options for our best research available.

Although the S&P 500 has risen 2.35% over the past week and is now within 2% of its all time high on February 19th, sentiment saw little changes this week.  In AAII’s weekly survey, only 23.29% of investors reported as bullish on the direction of stocks over the next six months. That is up roughly 3 percentage points from last week’s reading of 20.23% which was the lowest reading on bullish sentiment since May of 2016.

Meanwhile, bearish sentiment also moderated slightly falling to 47.6% from 48.47%.  Although lower week over week, that is still 17 percentage points above its historical average, and it has been more than one standard deviation above that average for 20 of the past 22 weeks.

Neutral sentiment was also slightly lower this week down from 31.3% to  29.11%. Click here to view Bespoke’s premium membership options for our best research available.