Going through the charts of gold, silver, and copper this morning, it’s ironic to see that in terms of both their performance over the last year, and over the longer term, their returns rank in the same order as their medal order in the Olympics.  Starting with gold, it has been a strong year for the precious metal with a gain of about 25%.  In recent weeks, though, we’ve seen a bit of a sideways pattern.  Today, gold is trading up about 1%, and after two prior attempts at a breakout, it is once again testing resistance right below the $1,800 per ounce level.

Even if gold doesn’t break out above recent intraday highs, on a closing basis, it’s pretty much right at its highest levels since October 2012 but still below its closing peak of 1,889.70 back in August 2011.

Silver gets the silver medal with its 17% gain over the last year.  Like gold, silver is also dealing with a good amount of resistance over the last year as the high $19/low $19 level has been a barrier to the upside on multiple occasions.

Unlike gold, which is near eight-year highs, silver is well off the extreme highs it saw early in the last decade.  Back in 2012, silver was trading above $30 per ounce and traded just shy of $50 back in April 2011.  Since 2014, silver has been in a relatively tight range with upside capped at around $20.

Trailing gold and silver for the bronze medal, copper prices are much further below their highs of the last year.  At the current price of $265.2 per pound, copper is down nearly 2% over the last year.

Also, like silver, copper prices were a lot higher earlier in this decade than they are now.  Back in 2010, the price per pound was closer to $450 but has been trending lower ever since then. Click here to view Bespoke’s premium membership options for full access to all of our research. 

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.

While you’re here, join Bespoke Premium for 3 months for just $95 with our 2020 Annual Outlook special offer.

Remote Work

When Workers Can Live Anywhere, Many Ask: Why Do I Live Here? by Rachel Feintzeig and Ben Eisen (WSJ)

With COVID work-from-home responses untethering workers from their offices, they’re coming to the realization that they don’t actually need to be where they currently live. [Link; paywall]

Highest Salaries For Software Developer Remote Work (Metro Areas) by Wendell Cox (New Geography)

Adjusted for the cost of living, metros in North Carolina, Texas, Washington, and Colorado stand out as offering the best standard of living per dollar of pay for software developers. [Link]

China

China Is Collecting DNA From Tens of Millions of Men and Boys, Using U.S. Equipment by Sui-Lee Wee (NYT)

Chinese authorities are working to develop a national genetic database that will be used to augment surveillance and control capacity for the state. Massachusetts-based Thermo Fisher is helping in the effort. [Link; soft paywall]

China halts European salmon imports over suspected link to virus outbreak by Nerijus Adomaitis and Kate Kelland (Yahoo!/Reuters)

While salmon itself is unlikely to play host to the coronavirus, China is shutting down imports from northern Europe over concerns it drove an outbreak at a Beijing market. [Link; auto-playing video]

Food

America’s retreat to comfort food during the pandemic isn’t pure nostalgia — it’s a survival tactic by Kate Taylor (Business Insider)

“Junk” food isn’t just being purchased as a feel-good callback to more stable times but is also a strategy to reduce trips to the store and cut costs. [Link]

“One country’s joke is another country’s breakfast”: The story of Spam by Aimee Levitt (The Takeout)

An oral history of the canned meat that fed GIs in World War 2, became a critical lynchpin of a number of national cuisines, and is now being rediscovered as a rich and salty addition to avant-guard cuisine. [Link]

Why Is the McFlurry Machine Down Again? by Julie Jargon (WSJ)

Frustrating cleaning processes, frequent breakdowns, and social media frustration: why you can never get the ice cream cone or McFlurry you crave at McDonald’s. [Link; paywall]

Spending Patterns

Boats, Pools and Home Furnishings: How the Lockdown Transformed Our Spending Habits by Matthew Dalton and Suzanne Kapner (WSJ)

Stimulus payments and unemployment insurance are being pumped into home renovations and upgrades that provide a rare bright spot amidst broader economic decline. [Link; paywall]

The coronavirus pandemic can’t stop Americans from buying pickups by Nathan Bomey (USA Today)

Americans’ love affair with pickups is helping to keep the auto market afloat as the category remains much stronger than the sales of all light autos. [Link]

Parents are dropping $150K on luxury summer camps for their kids by Melkork Licea (New York Post)

Desperate to get their kids out of the house, parents are laying out six figure sums for summer sleepaway camps that will give parents a break from constant childminding. [Link]

COVID & The Elderly

Nobody Knows Exactly How Hard The Coronavirus Is Hitting America’s Assisted Living Facilities by Rosalind Adams and Ken Bensinger (BuzzFeed)

Assisted living facilities around the country have been hit hard by the virus, but New York state’s many care homes have been about as badly hit as it gets. [Link]

“Fire Through Dry Grass”: Andrew Cuomo Saw COVID-19’s Threat to Nursing Homes. Then He Risked Adding to It. by Joaquin Sapien and Joe Sexton (ProPublica)

Policy decisions by Governor Cuomo created a much worse outcome for New York nursing homes than those in other states, with roughly 6% of residents killed by the virus. [Link]

COVID Stories

Coronavirus: Dexamethasone proves first life-saving drug by Michelle Roberts (BBC)

While initial data from studies of dexamethasone is limited, it indicates a substantial positive impact on patients, reducing risk of death by one-third for patients on ventilators. [Link]

Rural Alabama County Fights Virus Outbreak With Just One Doctor by Margaret Newkirk and Danielle Bochove (Bloomberg)

Alabama’s Lowndes County has no hospital and just one doctor, relies on tightly packed mobile homes for housing, and an infection rate similar to New York City during the peak of its pandemic. [Link; soft paywall]

Fauci said US government held off promoting face masks because it knew shortages were so bad that even doctors couldn’t get enough by Mia Jankowicz (Business Insider)

CDC infectious disease head Dr. Anthony Fauci revealed that initial guidance for the public to wear masks was withheld because the government wanted to retain supplies of masks for health care workers, even though homemade masks and non-medical grade masks can still substantially reduce transmission with widespread use. [Link]

Oura

Covid-detecting ‘smart rings’ to be trialled by staff at Las Vegas resort by Patrick McGee (FT)

Casino staff will start using Oura smart rings to detect pre-symptomatic staff members that might be coming down with COVID but are not yet showing visible symptoms. [Link]

Inside the NBA’s plan to use smart technology and big data to keep players safe from coronavirus by Jessica Golden (CNBC)

The NBA will also use the Oura rings to help detect signs of infection among players who are living in Disney World in July as part of the NBA season’s restart. [Link]

Research

US dollar funding: an international perspective (BIS Committee on the Global Financial System)

A detailed review of why the dollar is such a critical piece of the global financial landscape, and how its movements and availability can have complicated effects on markets and economies around the world. [Link; 87 page PDF]

How Did COVID-19 and Stabilization Policies Affect Spending and Employment? A New Real-Time Economic Tracker Based on Private Sector Data by Raj Chetty, John N. Friedman, Nathaniel Hendren, Michael Stepner, and the Opportunity Insights Team (Opportunity Insights)

High frequency data suggests reopenings are not helpful for boosting local employment, while stimulus checks boost lower income household spending. Paycheck Protection Program loans had little effect on employment. The authors conclude that social insurance which protects incomes are more effective than other macroeconomic stabilization tools. [Link; 85 page PDF]

Structuring Federal Aid To States As An Automatic (and Autonomous) Stabilizer by Alex Williams (Employ America)

One social insurance policy option is the introduction of automatic block grants to states that insure lower levels of government against sudden revenue declines during a macroeconomic shock. [Link]

Social Media

TikTok Finally Explains How the ‘For You’ Algorithm Works by Louise Matsakis (Wired)

Algorithmically-driven Tik Tok serves up an endless feed of videos to each user, uniquely tailored to that user. This week the company published a blog post detailing the basics, which are weighted by everything from hashtags to the type of device being used. [Link; soft paywall]

Does Tweeting Improve Citations? One-Year Results From the TSSMN Prospective Randomized Trial by Jessica G Y Luc, Michael A Archer, Rakesh C Arora, Edward M Bender, Arie Blitz, David T Cooke, Tamara Ni Hlci, Biniam Kidane, Maral Ouzounian, Thomas K Varghese Jr, and  Mara B Antonoff (PubMed)

Tweeting academic articles leads to a citation rate more than 4 times higher than un-tweeted articles, revealing the critical role Twitter plays in disseminating and highlighting new information. [Link]

Civil Liberties

After Barr Ordered FBI To “Identify Criminal Organizers,” Activists Were Intimidated At Home And At Work by Chris Brooks (The Intercept)

In response to massive protests over recent weeks, the FBI and DoJ more generally have singled out first-time activists for benign organizing activity. [Link]

Music

Top composers used to head to Hollywood. Now they’re into games by Will Bedingfield (Wired)

Hollywood blockbusters used to be a gravy train for composers, but in recent years the expansion of video games as their own category of prestige media have lured composing talent into their arena. [Link; soft paywall]

Investing

Investors Approaching Retirement Face Painful Decisions by Akane Otani (WSJ)

Large numbers of older investors were forced to sell at the worst possible time back in the first quarter as stocks plunged. Please note that this story features a correction at its end. [Link; paywall]

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Have a great weekend!

100 days ago today on March 11th, the WHO made it official and declared the COVID-19 outbreak a pandemic. Markets were already under a lot of pressure before the WHO declared the pandemic, but the 100 days since will probably go down as some of the craziest 100 days we’ll ever experience, not only in the market but in general society as well.  More than enough ink and pixels have been spent discussing the societal impact at large, so we’ll spare you and just focus on the markets.

While much of the declines were already in the rearview mirror by the time the WHO made its announcement, equities still had a steep decline in the immediate aftermath.  The large-cap Russell 1000, for example, fell another 19% to its March 23rd closing low, but after the rebound, the net change since the pandemic was officially declared has been a gain of 14.3%.

As impressive as the Russell 1000’s gain has been in the face of the global pandemic, many stocks have done a lot better than that.  The table below lists the 25 stocks in the index that have seen the biggest gains so far during this pandemic.  Topping the list is Wayfair (W) which has rallied more than 350%.  If there is one thing Americans must have realized while they were stuck at home under lockdown it was that they needed some new furniture!  Behind Wayfair, two other stocks have more than tripled and both were beaten down stocks from the Energy sector that were trading at less than $2 per share on March 11th.  A number of familiar names standout including Moderna (MRNA), Twilio (TWLO), DocuSign (DOCU), Beyond Meat (BYND), and Etsy (ETSY), but looking through the list, there’s really a diverse group of names ranging from bombed-out stocks from the Energy sector (8 stocks), Consumer names (7 stocks), and the ever-popular software stocks from the Technology sector (6 stocks).  It’s definitely been a rocky road for the markets over the last 100 days, but for anyone who had these names in their portfolio, they aren’t complaining. Click here to view Bespoke’s premium membership options for access to our weekly Bespoke Report which includes an update to our Stocks for the COVID economy portfolio that was released on March 11th. 

Equity markets have become a bit wobbly in the last week or so, but breadth, in terms of large-cap industry groups, still remains pretty robust.  Relative to their 50-DMAs, all 24 S&P 500 industry groups still have rising 50-DMAs.  When you consider the fact that the 50-day window spans the period going back to early April, a period encompassing most of what was one of the strongest 50-day rallies on record, the fact that every industry group has a rising 50-DMA isn’t all that surprising.

Even though all their 50-DMAs are rising, not every industry group is currently trading above its 50-DMA. While the reading briefly reached 100% in late May and early June, two industry groups have since pulled back below their 50-DMAs, putting the percentage at a still impressive 91.7%.

The table below summarizes industry group performance showing YTD performance, where each one is trading relative to its 50-DMA, as well as where the group is trading relative to its 52-week high.

As mentioned above, all but two groups (Drugs & Biotech and Food & Staples Retail) remain above their 50-DMAs, and another four are less than 2% above their 50-DMA.  If Friday’s sell-off deepens into next week, the percentage of industry groups above their 50-DMAs has the potential to quickly sink as low as 75%.  Of the 22 industry groups that are above their 50-DMAs,  Autos and Tech Hardware are the only two greater than 10% above.

On a YTD basis, the S&P 500 is down less than 4%, but for the vast majority of industry groups, performance has been worse than that.  Of the 24 groups shown, 16 are down more than 4% YTD, including eleven that are down over 10%. The worst performers of these losers include Energy, Banks, and Autos.  While Energy gets most of the attention for being so weak, Banks are essentially down just as much!  On the upside, just two industry groups are up over 10% (Retailers, which is basically Amazon, and Software & Services).  Retailing is also the one industry group that is within 1% of a 52-week high and one of seven that is within 4% of a 52-week high. Click here to view Bespoke’s premium membership options for our best research available.

We’ve noted in detail the massive reversals seen in global equities over the last three months, but outside of equities, we’ve also seen some other massive moves.  One example is credit spreads between the yields of corporate and high yield bonds relative to Treasuries.

The top chart below shows the spread in yields between the B of A Corporate Index relative to Treasuries going back to 1997, and below that, we show the 50-day rate of change in the spread.  Heading into the COVID-crash, spreads on corporate bonds were less than 100 basis points (bps), meaning the corporate bond index was yielding only 1 percentage point more than comparable Treasury yields.  In the span of less than two months, though, spreads surged by more than 300 bps to over 400 bps.  Not since the depths of the credit crisis in 2009 had we seen spreads widen out more than they did in March. Just as notable as the level is the fact that the speed with which spreads widened during the COVID-crash was similar to the pace during the credit crisis.

While spreads were quick to spike during both crises, they narrowed nearly as fast both times.  Going back to 1997, the most corporate spreads have ever narrowed over a 50-day period was in June 2009.  Coming in at a close second place, though, the 50-day period ending in early June was nearly as extreme.

Similar to spreads on corporate bonds, the movement in spreads on high yield (junk) credit has been nearly as extreme.  While spreads on the B of A High Yield Master Index widened out by only half as much during the COVID-crash as they did during the Financial Crisis, the 50-day move ending in late March was easily more extreme than any other period outside of the credit crisis.

A shown in both charts above, the only time both corporate and high yield spreads narrowed by an amount anywhere close to the amount they narrowed from late March through early June was back in early June of 2009.  The chart below of the S&P 500 shows that point from the perspective of the S&P 500. That period in June 2009 was right in the early stages of what turned out to be a multi-year bull market. Given the similar tightening in the credit market now versus back then, should we assume a similar move for equities going forward?

After the last five months, we’ll be the first to say that anything is possible.  However, while there are plenty of similarities between the moves in credit markets over the last three months versus the first half of 2009, there are also important distinctions.  The most important of these has to do with where the S&P 500 is trading right now. The second chart below shows the historical levels the S&P 500 has traded at relative to its all-time high.  Even after the initial narrowing of credit spreads from March through early June 2009, the S&P 500 was still more than 40% off its all-time highs, and therefore still had a lot of climbing to do to get out of the hole.  Back in June 2009, to get back to its all-time high from October 2007, the S&P 500 still had to rally another 75%.  Today, it’s a much different picture as the S&P 500 is already within 10% of its February 2020 all-time high.  Could we be in the earlier stages of what turns out to be another long-term bull market?  Sure.  Will the magnitude of the gains be anything like the gains early on in the bull market that began in 2009?  It’s unlikely. Click here to view Bespoke’s premium membership options for our best research available.

This morning, the Philadelphia Federal Reserve Bank updated its manufacturing index for the month of June. The past few months have seen some of the lowest readings in the index’s history dating back to 1968.  But this month the index rose from -43.1 in May to 27.5 in June.  That 70.6 point increase in the index was the largest single-month gain on record.  The turn into positive territory also indicates that overall manufacturing conditions for the region improved in June, although we’re still far from fully recovered from the impacts of COVID-19.  In the special questions section of this month’s survey, 77.8% of businesses reported total production is down in Q2 versus Q1.  Of the responding firms, 46% reported conditions improved in June compared to 19% reporting decreases. Last month over half of the respondents reported worse conditions.

While the return to positive territory only leaves the headline index at its highest level since February, the index for conditions six months in the future is much higher as firms have an optimistic outlook.  That index rose from 49.7 in May to 66.3 in June; its highest level since June of 1992.

Like the gain in the headline number which was the largest since month over month increase on record, the same can also be said for Shipments while several other categories, especially those for future expectations, experienced increases in the 90th percentile or better of all prior periods. In addition to the headline index, several categories also showed expansionary readings (above 0) compared to only two last month.  For the six month outlook, every index is now positive.

Indicators of demand like new orders and shipments have both picked up substantially.  As previously mentioned, the index for Shipments saw its largest monthly gain on record while New Orders saw its second-largest gain on record behind last month’s even larger gain of 45.2 points.

Broad activity for the region appeared to rebound in June, but employment remains weak.  The indices for Number of Employees and Average Workweek both remain in negative territory (indicating a decrease in the level of employment) at -4.3 and -6.5, respectively, though they too have at least improved for two months in a row. Another reason for optimism regarding these indices is the six-month outlooks indices for these categories came in much stronger. In other words, while companies may not currently hiring, they expect to start doing so before year end.   Click here to view Bespoke’s premium membership options for our best research available.

The S&P 500 has faced its share of downward pressure in the past week including a 5.76% drop last Thursday and multiple days with declines intraday.  That has slammed investor sentiment as AAII’s bullish reading fell 9.91 percentage points to 24.37% this week. That is the largest single weekly decline in bullish sentiment since the final week of February when it fell 10.17 percentage points from 40.6% to 30.43%.  This week also marked the largest move in absolute terms since then. That leaves bullish sentiment at its lowest level since the May 14th low of 23.31%.

The loss in bullish sentiment has almost entirely been picked up by the bearish camp.  Bearish sentiment rose 9.73 percentage points this week to 47.78%; the highest reading of the past month.  This was the first time bearish sentiment has risen in six weeks. As shown in the second chart below, the five-week streak of consecutive declines in bullish sentiment came to an end tied with six other identically long streaks for the longest in the history of the survey dating back to 1987.

The large inverse moves of bullish and bearish sentiment this week has caused the bull-bear spread to decline.  The spread now stands at -23.41 compared to -3.77 last week. That 19.64 point decline was the largest drop in the spread and largest absolute move since a 20.49-point drop on March 12th.  That also snapped a streak of five weeks in which the spread was moving in the direction of favoring bulls.

Not all the losses in bullish sentiment turned pessimistic though.  Neutral sentiment experienced a small increase of 0.18 percentage points to 27.85%.  Click here to view Bespoke’s premium membership options for our best research available.

We’ve seen a number of claims recently that the huge surge in the share prices of formerly “trash” companies is a sign that markets are getting carried away.  In reality, this is very normal behavior coming out of an extreme market movement like the February-March selloff.  Across the 26 Russell 3,000 companies that had CDS spreads greater than 1000 bps (the traditional indication of “distressed” credit territory) at the equity market lows on March 23rd, the average spread was over 57%.  As shown below, in 2009, there were three times as many distressed companies, but they traded at a lower average spread (26%).

Average performance afterwards, though, looks almost identical in the two cases.  As shown below, in the 60 trading days that started the last bull market in 2009, these distressed companies rallied 209.8% on average.  In the current situation, the average gains have been 208.2%.

Given the fact that equity is a call on the value of assets (retaining whatever is left after liabilities), large shifts like major bear market lows by definition should lead to huge gains for the most distressed companies.  In other words, the theory (first put forward by Robert C. Merton in 1974, link) is perfectly consistent with what we see in practice both now and historically.  The most stressed companies by definition should rally the most, by virtue of their distress in the first place; this “dash for trash” phenomenon is a function of the capital structure of distressed firms, not any sort of sentimental excess in the behavior of investors.  This analysis was included in last night’s Closer report — Bespoke’s post-market macro note that goes out to clients at 6 PM ET each weekday.  If you’d like to receive Bespoke’s Closer free for the next two weeks, sign up for a 14-day trial to Bespoke Institutional by clicking here.

Last week, initial jobless claims beat estimates for the first time in six weeks.  That better than expected trend didn’t continue this week, though, as seasonally adjusted claims came in at 1.508 compared to forecasts of 1.290. With claims 218K above expectations, that was the largest miss relative to forecasts since the week ending May 8th (481K above estimates).  Even though claims were higher than expected this week, they still declined…again.  Claims were lower week over week for an eleventh consecutive week; the longest such streak on record. Granted, this week’s decline was the smallest of the eleven weeks at just 58K.  On an absolute basis, that was actually the smallest change (either positive or negative) since the first week of March (6K decline) when claims were printing in the sub-millions. Overall, a massive number of Americans continue to apply for unemployment insurance, and while there have been fewer doing so, the rate of those improvements has also slowed

On a non-seasonally adjusted basis, claims also fell and by a larger degree than the seasonally adjusted number.  Non-seasonally adjusted claims totaled 1.433 million this week; down 128K from last week. Unlike the seasonally adjusted data, that was not the smallest change of the past several weeks, but this reading has also generally seen lesser improvements recently.

It is a similar story for continuing jobless claims which fell by just 62K to 20.544 million this week; the smallest absolute WoW change since March 6th.  With people returning to work as the economy slowly reopens and additional initial claims still in the millions, the in and out-flows have seemed to more or less balance out as continuing claims have been fairly flat over the past month, especially relative to much larger moves in March, April, and the first half of May.  Since May 17th, continuing claims have hovered between roughly 20.5 million and 21.25 million with this week’s reading at the lower end of that small range.  Click here to view Bespoke’s premium membership options for our best research available.

As economies around the country slowly recover from COVID-19 and reopenings proceed, economic activity is slowly recovering. For the hardest-hit sectors, though, the recovery is only inching forward. Security checkpoint volumes at US airports are still down 80% YoY, and the trend of improvement is only set to return travel activity to 50% of 2019 levels in September.

For restaurants, OpenTable data shows covers down by two-thirds from last year, though some of that is because many restaurants remain closed. Among reopened establishments, the number of seated customers are still down almost 40% YoY. About half of restaurants remain closed per the OpenTable data.  We discussed this chart and other retail enthusiasm indicators in last night’s Closer report, which is available to Bespoke Institutional members.  Click here to start a two-week free trial.