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March 9th marked the 8-year anniversary since the 2009 Financial Crisis lows, and one of the topics we wanted to write about surrounding the 8-year mark was S&P 500 sector weightings.  Below is a table highlighting the percentage weighting of each sector as of the end of each year shown.  We’ve included weightings as of the close on 3/9/09 (the “low”) as well.

Back in 1990, there were four sectors at the top of the food chain — Consumer Discretionary, Consumer Staples, Industrials, and Energy.  The Technology sector had the second smallest weighting at just 6.34%, while the Financial sector was the fourth smallest.  As the 1990s progressed, the US continued a huge shift from primarily a manufacturing economy to a services economy.  Once the Dot Com bubble took hold, the Technology sector’s weighting shot up, and the Financial sector trailed it higher.  By the end of the 90s, the Technology sector’s weighting had ballooned to 29.18%, which was more than 16 percentage points larger than the next closest sector.  That was clearly not sustainable, and within 3 years the Tech sector’s weighting was more than cut in half.

From 2002 through 2006, the Financial sector had the largest weighting in the economy.  At the end of 2006, the Financials made up 22.27% of the S&P 500, which was more than 7 percentage points above the next closest sector.  The Financial sector exists to service the economy, and that fact alone should tell you that something isn’t right when the Financial sector is by far the largest sector of the market.  Cue the Financial Crisis…

From the end of 2006 through the low on March 9th, 2009, the Financial sector’s weighting in the S&P dropped from 22.27% to 8.58%.  At the lows, the Financial sector had dropped from the largest sector to the fifth smallest.

Over the last 8 years, we’ve seen the Technology sector remain on top the whole time, and as of March 2017, it’s weighting stands at 21.74%.  That’s not nearly as elevated as it was in 1999, but it is starting to creep up to levels that make you squeamish.

We mentioned early on that back in 1990, the four largest sectors were Consumer Discretionary, Consumer Staples, Industrials, and Energy.  Fast forward 27 years to today, and those four sectors are now the 4th through 7th largest.  Technology, Financials, and Health Care currently hold the top three spots — making up nearly 54% of the market.  The bottom three sectors make up less than 9% of the market today, while the bottom three made up 20% back in 1990.  Along with the shift from manufacturing to services, the economy today is much more top heavy.

(One thing to note is that in 2016, S&P added the “Real Estate” sector in order to remove REITs from the Financial sector.  In order to make an apples to apples comparison from a historical perspective, we’ve added the Real Estate sector’s current weighting back into the Financial sector.)

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Each month, Bespoke runs a survey of 1,500 US consumers balanced to census.  In the survey, we cover everything you can think of regarding the economy, personal finances, and consumer spending habits.  We’ve now been running the monthly survey for more than two years, so we have historical trend data that is extremely valuable, and it only gets more valuable as time passes.  All of this data gets packaged into our monthly Bespoke Consumer Pulse Report, which is included as part of our Pulse subscription package that is available for either $39/month or $365/year.  We highly recommend trying out the service, as it includes access to model portfolios and additional consumer reports as well.  If you’re not yet a Pulse member, click here to start a 30-day free trial now!

The first chart below highlights the monthly results of two questions that we ask survey takers.  The first asks them about their expected discretionary spending over the next few months, while the second asks them for their feelings towards their current financial situation.  In our most recent monthly survey, we saw a continuation of the positive sentiment that respondents have felt about their financial situations.  This is a key driver for expected discretionary spending over the next few months, which has also been increasingly positive in our survey.  Over the next few months, we should see this trickle through to higher activity across all spending categories.  While the fundamentals of consumer strength have also looked solid, we believe perceived financial condition is far more important, as the first chart below demonstrates.

Not only have respondents felt much better about their own financial condition recently, but they feel that they are in better financial condition relative to other consumers.  The second chart below shows that perceived financial conditions relative to the average person has hit a new high in our survey series.  While this may not seem significant, it indicates that “animal spirits” are really accelerating for the US consumer.

To track additional consumer sentiment trends, click here to start a 30-day free trial to our Pulse service now!

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.

Social Science

Is It Better to Be Poor in Bangladesh or the Mississippi Delta? by Annie Lowery (The Atlantic)

An interview with the most recent Nobel laureate in economics, Angus Deaton, dives into some of the complications, contradictions, and tragedies of policy outcomes in the US. [Link]

Quarterly Review, March 2017 (Bank for International Settlements)

A huge compendium of new research from the BIS staff with investigations of risk appetite, global financial flows, consumption, credit loss provisioning, payments, and the use of swaps at the long end of the yield curve. [Link]

A Public-Health Crisis That We Can Fix by David Leonhardt (NYT)

US traffic deaths are surging higher after years of steep declines, thanks to the incessant use of cell phones by drivers who should be watching the road. [Link; soft paywall]

Risk Factors

Cyxtera adds protection against looming U.S. tax changes by Jonathan Schwarzberg and Lynn Adler (Reuters)

Buyers of leveraged loans have a new risk factor to consider when scrutinizing bond documents. Data center operator Cyxtera added language to a new issue that would allow it to call loans in the three-tranche deal in the event legislation removing the tax-deductible status of interest payments is enacted; such language is under consideration for the Republican tax reform package. [Link]

Architecture

Google’s New Circus Tent Campus Approved, Construction To Begin In April by Jay Barman (SFist)

The newest addition to Google’s Mountain View campus evokes the circus visits of childhood, with expected completion two years from now. [Link]

Transportation Trouble

Waymo Asks Court to Block Uber’s Self-Driving Car Project by Daisuke Wakabayashi (NYT)

In an odd turn of events, a former Google subsidiary is suing a Google Ventures portfolio company over technology allegedly stolen by a former employee. [Link; soft paywall]

Repairing My Tesla Model S Has Been an Utter Nightmare — and It’s Mostly Tesla’s Fault by Evan Niue (The Motley Fool)

Tesla performs repairs on its vehicles, and that’s a problem for this owner who has had a frankly unbearable struggle trying to get his repaired after being rear-ended. [Link]

CIA ‘mission’ on cars shows concern about next-generation vehicles by Alexandria Sage (Yahoo!/Reuters)

One part of the new Wikileaks release of CIA documents shows that the CIA considered a “mission” against connected car technology, prompting concern from manufacturers and watchdogs. [Link]

Update On Asia

Trump Inherits a Secret Cyberwar Against North Korean Missiles by David E. Sanger and William J. Broad (NYT)

A painstakingly researched story about the secret digital tools deployed against North Korea by the Obama Administration, and what that means for the current flare-up in regional tensions. [Link; soft paywall]

Capital controls the talk of China parliamentarians by Emily Feng and Tom Mitchell (FT)

At last week’s annual meeting of China’s National People’s Congress, concerns and frustration over the ratcheting up of capital controls was a hot topic. [Link; paywall]

Millennial Movers Breathe New Life Into Japanese Mountain Towns by Keik Ujikane and Masahiro Hidaka (Bloomberg)

Rejecting urban intensity as industrial strategy: rural areas in Japan faced with challenging demographics (a rapidly aging population) are trying to draw young white color workers and businesses requiring low-intensity manual labor into the hollowing out interior of some Japanese islands. [Link]

Sustainability

A Single Bitcoin Transaction Takes Thousands of Times More Energy Than a Credit Card Swipe by Christopher Malmo (Motherboard)

Even at the current scale (relatively small), Bitcoin devours energy at a breathtaking pace; the computational needs of the blockchain require enormous amounts of electricity to function properly. [Link]

UK carbon emissions fall to late-19th century levels by Pilita Clark (FT)

Thanks in part to plunging coal consumption, UK CO2 emissions are collapsing on an outright basis, currently at the lowest level since the Great Depression and in about the same place they were in the late 1890s. [Link; paywall]

Investing

The Golden Age of Hedge Funds by Ben Carlson (CFA Institute)

Alpha is always scarce, but when thousands of new funds and billions of new AUM start competing for it, its life expectancy goes to almost zero. So it is in the world of hedge funds. [Link]

Individual Investors Wade In as Stocks Soar by Aaron Kuriloff and Daisy Maxey (WSJ)

In the aftermath of the financial crisis, smaller investors were very hesitant to buy into the rising stock market for fear of another crash. Now, with stock valuations elevated and the economic cycle much longer in the tooth, they’re piling in. [Link; paywall]

Regulatory Revision

Gutting Dodd-Frank Is Hard, So Republicans Focus Elsewhere by Elizabeth Dexheimer (Bloomberg)

Banks have seen valuations basically double over the past year as the market bids up prospects of higher net income thanks to deregulation from the new Administration. The reality on the ground, on the other hand, is much different. [Link; auto-playing video]

Clarifying the Choices in Housing Finance Reform by Jim Parrott (Urban Institute)

A fine effort at clarifying competing ideas for how housing finance ought to work, with three different approaches laid out and compared. [Link]

Turnarounds

Kony 2017: From Guerrilla Marketing to Guerrilla Warfare by David Gauvey Herbert (Foreign Policy)

After achieving a global viral moment in 2012, nonprofit Invisible Children was widely criticized. Since, its taken a radically different approach to its mission with radically different results. [Link]

Struggling shopping malls let high schools, doctors move in where Penney’s used to be by Tonya Garcia (MarketWatch)

While occupancy rates remain extremely high, mall landlords are being forced to turn to nontraditional renters to keep their square footage filled. [Link]

Sports

Men’s & Women’s College Basketball: ESPN Blankets Networks with 24-Hour Tournament Challenge Marathon on March 13-14 by Rachel Margolis Siegal (ESPN MediaZone)

Save a thought for the brutal basketball binge that Rece Davis, Jay Bilas, Seth Greenberg, and Jay Williams will be forced to consume in a 24-hour straight lineup of appearances. [Link]

Writing

What writers really do when they write by George Saunders (The Guardian)

Adding context adds humanity and room for understanding; the more specific we are about what we are communicating, the more likely we are for other people to understand the nuance of our words. [Link]

Easy Money

Blank book about Democrats is No. 1 bestseller on Amazon by Yaron Steinuch (NYPost)

A joke book – with all blank pages – purporting to argue good reasons to vote for Democrats is currently the best-selling book online. [Link]

Have a great Sunday!

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Below is an updated look at our Dow 30 trading range screen.  For each Dow member, the dot represents where it’s currently trading, while the tail end represents where it was trading one week ago.  The black vertical “N” line represents each stock’s 50-day moving average, and moves into the red or green zones are considered “overbought” or “oversold.”

As shown, a majority of Dow stocks remain in overbought territory, but most of them have also gotten less overbought over the last week.  You can see this because the dot is to the left of the tail for many stocks.  Johnson & Johnson (JNJ) is the only stock that remains in extreme overbought territory, which means it’s trading more than two standard deviations above its 50-day moving average.  American Express (AXP), IBM, and United Tech (UTX) are three stocks that have moved from overbought down to neutral territory over the last week.

A few Dow stocks are struggling below their 50-day moving averages.  Caterpillar (CAT) and Chevron (CVX) stand out the most after experiencing big moves lower from neutral into oversold territory over the last week.

In terms of year-to-date performance, Apple (AAPL) is back on top again with a 2017 gain of 20% already.  Boeing (BA) and Visa (V) are two additional big winners.  On the downside, Exxon Mobil (XOM) is leading the way lower with a YTD decline of 9.9%.  Verizon (VZ) is down the second most of any Dow stock at -7.54%, followed by Chevron (CVX) and General Electric (GE).

To see Bespoke’s full line of macro and micro research, sign up for one of our premium membership options today!  You won’t be disappointed.

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Earlier today we published our bi-weekly Short Interest Report for subscribers.  One of the tables in the report highlights the most heavily shorted stocks in the S&P 500, which we’ve reproduced below.

As shown, Under Armour (UAA) is currently the most shorted stock in the S&P with 24.4% of its equity float sold short.  First Solar (FSLR) ranks just behind Under Armour with 24.18% of its float sold short.  Retailer Nordstrom (JWN) is the third most heavily shorted stock in the S&P 500, while Frontier Communications (FTR) and Garmin (GRMN) round out the top five.  There are a significant amount of investors that have placed negative bets on these five large-cap companies.

Other notables on the list of most shorted stocks in the S&P 500 include Chipotle (CMG), Urban Outfitters (URBN), TripAdvisor (TRIP), Best Buy (BBY), Gap (GPS), and Kohl’s (KSS).

On average, the stocks listed in the table are down 5.5% year-to-date.  That’s much weaker than the 5%+ gain that the S&P 500 has seen, and it shows that at least some short sellers are having a good year even in a rising market.

To see Bespoke’s full line of macro and micro research, sign up for one of our premium membership options today!  You won’t be disappointed.