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“It is always the person not in the predicament who knows what ought to have been done in it, and would unquestionably have done it too” – Charles Dickens, A Christmas Carol

Below is a snippet of commentary from today’s Morning Lineup.  Start a two-week trial to Bespoke Premium to view the full report.  

The Dow and the Nasdaq are both on pace for their ninth straight session of gains, and this morning’s data on Housing Starts and Building Permits hasn’t done anything to change the direction.  Building Permits were ever so slightly weaker than expected, but Housing Starts came in significantly better than expected coming in at 1.56 million compared to forecasts for a level of 1.36 million. If these pre-market gains in futures hold, it will further reinforce the point that good economic news is good again now that the Fed has pivoted away from rate hikes.

The energy sector was always the fuel to power the industrial economy, but in the digital economy, it has taken a back seat to technology.  An example of the shifting role of each sector is the fact that in 1990, Energy accounted for 13.4% of the S&P 500’s market cap or more than twice the 6.3% weighting of the Technology sector. Today, Energy accounts for just 4.7% of the S&P 500’s market cap compared to Technology’s 27.9% weighting.

While most stocks are positively correlated with each other, there has been little correlation between Technology and Energy in recent years, and the last two years provide a perfect example. The charts below show the annual returns of the Energy and Technology sectors since 1990.  In 2022, Energy had its best year since at least 1990, rallying 59.0%. Technology, meanwhile, cratered 28.9% for its worst year since 2008 and its fourth worst year since at least 1990.  This year (through 12/18), we have seen the opposite pattern playout as Energy has declined 4.3% while Technology has rallied 56.3% for its best year since 2009 and its fourth-best year on record.

Looking at a comparison between the performance of the two sectors a little more closely, the chart below shows the annual performance spread between Technology and Energy for each year since 1990.  Last year, Technology underperformed Energy by the largest amount since at least 1990, but this year it is outperforming Energy by the fourth largest margin on record. Additionally, there have been more years (6) in the last ten where the direction of Energy was the opposite of Technology than there were in the prior 24 years (5).  Like oil and water, Energy and Technology just don’t mix.

Separately, we’ve had some issues with our email deliverability lately, especially with corporate email addresses that have security filters that automatically click every link in our emails to check that the links are safe.  Unfortunately, this “auto-click” process sometimes clicks the “unsubscribe” link in our email as well, which removes the email from our mailing list.  One thing you can do to prevent being automatically unsubscribed is to add @bespokeinvest.com as a safe sender in your email software.  If you have an IT department, please check with them if you need help.

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