The major US indices managed to finish August on a higher note as each one experienced mean reversion last week.  Except for the Micro-Cap ETF (IWC), each of the major index ETFs tracked in our Trend Analyzer worked off their oversold levels to finish the week in neutral territory.  At the start of last week, small and mid-caps were actually over 2 standard deviations below their 50-DMAs.  There is still not a single ETF that has managed to break above their 50-DMAs despite last week’s rally.  The closest to its 50-day is the Dow (DIA) which outperformed last week rising over 3%.  The Nasdaq (QQQ), while further below its moving average, similarly rose just under 3%.

Although the major indices finished the week higher, they also fell on Friday.  These declines came as the indices entered the upper end of the past month’s range.  As for the Dow (DIA), it was the only ETF to have significantly broken above this range.  But at the same time, it also failed to retake its 50-DMA.  It is a similar story for most other large cap indices like the S&P 500 (SPY) and S&P 100 (OEF) which also rejected resistance at both the upper end of the past month’s consolidation and their 50-DMAs.  Small and midcaps, on the other hand, failed to break out of their short term downtrends after running into resistance at the high end of these channels.  Start a two-week free trial to one of Bespoke’s premium equity market research offerings.

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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China

Member Survey: August 2019 (US-China Business Council)

This very long survey of US businesses on the subject of China is a bit much to summarize in a pithy sentence, but some of the specific responses are surprising. [Link; 20 page PDF]

Trump’s New Trade War Tool Might Just Be Antique China Debt by Tracy Alloway (Bloomberg)

Long-since defaulted bonds issued before Mao turned China into the People’s Republic are a source of speculation, making collectible pieces of paper seem like they’re an actual investment. [Link; soft paywall]

Costco just opened its first store in China and the response is insane by Brian Sozzi (Yahoo! Finance)

While American companies don’t always find success in the tilted playing field of the Chinese economy but the initial reaction to Costco from consumers in China is a big thumbs up. [Link; auto-playing video]

Taxes

Huge hoard of Norman coins reveals medieval tax scam by Mark Brown (The Guardian)

Coins discovered recently show evidence that Norman era coinage in Britain was victim to counterfeiting that debased currency and reduced tax liability for the moneyed classes. [Link]

Addicted to Fines (Governing)

How the combination of concentrating economic activity and poor governance have left large chunks of the country dependent on revenue generated by issuing tickets and other forms of police activity. [Link]

The Minimum Wage Is a Sales Tax on the Middle Class by Matthew C. Klein (Barron’s)

Studies of very large minimum wage hikes in Eastern Europe suggest that businesses respond to the higher labor costs by raising prices. In effect, consumers pay the higher wage costs, meaning the whole minimum wage hike functions a bit like a sales tax. [Link; paywall]

Real Estate

Your Next Home Might Be Appraised by a Robot by Ryan Dezember (WSJ)

New rules are raising the price cap on homes that are exempt from valuation by an actual human being, meaning millions of sales will now have no third-party evaluation of the house attached to them at all. [Link; paywall]

Restaurants

Chicken sandwich mania at Popeye’s: big crowds, long waits and our critic’s take by Michael Mayo (South Florida Sun Sentinel)

August saw a frenzy for chicken sandwiches at Popeye’s across the country, with customers drawn in by the new $4 chicken sandwich. [Link]

Hiring Is Very Hard for Restaurants These Days. Now They May Have to Fire. by David Yaffer-Bellany (NYT)

On top of higher wages demanded by workers in a tight labor market, the Social Security Administration is stepping up enforcement of fake numbers, cracking down on labor provided by undocumented immigrants which have long been the backbone of the restaurant industry. [Link; soft paywall]

Values

Historic Asset Boom Passes by Half of Families by David Harrison (WSJ)

While households with large amounts of wealth have seen their assets surge, those in the bottom half of the wealth distribution are lagging far behind despite a booming stock market and strong equity market rally over the past decade. [Link; paywall]

Incoming Harvard Freshman Deported After Visa Revoked by Shera S. Avi-Yonah and Delano R. Franklin (Harvard Crimson)

In a ridiculous abuse of power, an immigration official revoked an incoming freshman’s visa because some of his social media contacts had posted political views that the officer disagreed with. [Link]

Americans Have Shifted Dramatically on What Values Matter Most by Chad Day (WSJ)

A national poll show younger Americans are much less invested in patriotism, religion, and childrearing, but similarly inclined towards hard work, community involvement, and tolerance. [Link; paywall]

Evolving Tech

Older people are embracing video games. For some, that means stardom. by Kalhan Rosenblatt (NBC)

For older Americans who are often isolated, video games are offering a unique way to connect with other people and even stardom in a world of game streaming that eats up almost as many hours as games themselves. [Link]

Uh-oh: Silicon Valley is building a Chinese-style social credit system by Mike Elgan (Fast Company)

Concerns have grown over the authoritarian social credit system, which ties criticism of the government as well as other activity to all sorts of negative outcomes. Now, companies in the insurance, hospitality, transportation, and technology industries are all introducing similar if less comprehensive systems of social control. [Link]

Google Tries to Corral Its Staff After Ugly Internal Debates by Jack Nicas (NYT)

After years of keeping the stage open for debate among employees, Google has issued new workplace guidelines designed to keep debates from destroying productivity and the company’s entire culture. [Link; soft paywall]

I Visited 47 Sites. Hundreds of Trackers Followed Me. by Farhad Manjoo (NYT)

An illustration of how detailed tracking of our digital footprints have become as tracking software from across the internet follows users around. [Link; soft paywall]

Drugs

Cocaine has been found in some European shrimp, and it’s part of a disturbing trend of drug-filled shellfish by Aylin Woodward (Business Insider)

Drugs excreted by humans after consumption are piling up in river ecosystems, including some small freshwater shrimp in one study. [Link]

Bonds

Three U.S. bond kings wield same strategy, get same result: lag their peers by Jennifer Ablan (Reuters)

Star fixed income position pickers have fallen behind as bond prices have surged this year, with Gundlach, Ivascyn, and Minerd all lagging behind historic outperformance. [Link]

5G

Cities Are Saying No to 5G, Citing Health, Aesthetics—and FCC Bullying by Christopher Mims (WSJ)

Powerful radio antennas designed to help the rollout of 5G broadband wireless are sparking local resistance over concerns for health and property values. [Link; paywall]

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Have a great weekend!

Below is an update of fund flows data from the Investment Company Institute including mutual funds and ETFs. In the tables below, we show dollar fund flows for total mutual funds plus ETFs along with ETFs alone. Obviously, mutual fund flows have been persistently negative for a long time now, but ETF flows are making up for that in many ways. The combined data only goes back to 2013, but over that period total ETF flows are in the 99th percentile for all ETFs…and that includes a string of drawdowns in domestic equity ETF flows over the last few weeks. Combined, ETF plus mutual fund flows are a better measure of total sentiment than mutual funds alone. While ETF fund inflows are only just off record highs, combined mutual fund and ETF fund flows are down across the past week, month, three months, and year for all equity funds, domestic only equity funds, and global equity funds. On the other hand, bond funds have seen the same torrid inflows that have been picked up in mutual fund flows for a long time now: since 2013, total bond inflows to ETFs are near the 97th percentile for all periods. For ETFs plus mutual funds, recent inflows are less dramatic but still very, very large; that’s especially true for the municipal bond space. We also note commodity funds have seen a pickup in net flows of late. Start a two-week free trial to Bespoke Institutional to access The Closer and the rest of Bespoke’s suite of Institutional products.

To provide further context, below we show rolling 13 week fund flows for the total equity space as well as domestic funds only. While ETFs have seen material inflows, combined mutual and ETF flows are still materially negative, with total equity mutual fund plus ETF flows at a record size.

Please click the image below to view our September 2019 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three premium research levels.

Last week, retail had been showing some strength with solid earnings results and solid price action to match. While stocks like Target (TGT) and Lowe’s (LOW) saw record positive price reactions in response to their earnings reports, Ulta Beauty (ULTA) reported after the close last night and is seeing quite the opposite result. ULTA’s quarter left a lot to be desired. In addition to lowering guidance, the company missed EPS estimates by 4 cents while revenues were also weaker than estimates.  In response to this negative “triple play” report, investors are dumping the stock. ULTA gapped down 25.1% at the open and has fallen another few percentage points lower intraday as the stock now sits down 28.7% as of this writing.  This is the worst stock price reaction to earnings that ULTA has ever seen, surpassing the previous worst 21.81% gap down and 20.5% full-day decline in response to its December 5th, 2013 report.  As shown below, 10 months of strength for the stock have been wiped out in one morning.  It doesn’t get much more depressing than that for a shareholder.

Since this time last year, other than ULTA, there have only been six other S&P 500 stocks that gapped down over 20% in response to earnings, and only two of these—Kraft Heinz (KHC) and Nektar Therapeutics (NKTR)—gapped down over 25%. Align (ALGN) is the only stock to have gapped down over 20% in two different quarters in the past year.

For these stocks that have experienced severe declines in reaction to earnings, forward performance has not been great. The next day after earnings, each of these stocks has fallen further with declines ranging from 0.84% all the way to -11.19%.  The week, two weeks, and month after also see little respite as only Advanced Micro Devices (AMD) moved higher in each of these periods.  In fact, AMD is the only stock that is higher today than it was after its large drop in response to earnings.  Start a two-week free trial to Bespoke Institutional to access our interactive Earnings Explorer and much more.