To help get a gauge on which sectors are out- or underperforming the broader market, in the charts below, we show the relative strength lines of each of the eleven sectors versus the S&P 500 over the past year from our Sector Snapshot. Market trends in the prior days and weeks have resulted in some notable moves across these relative strength lines.

With Consumer Discretionary one of the weaker sectors of late as high growth areas have gotten hit hardest, its relative strength line has broken below its most recent low. While Consumer Discretionary has broken down on a relative basis, Communication Services, which has seen a massive string of underperformance since the summer, has seen a modest reversal higher, although the steep downtrend of the relative strength line is still in place.

The Tech sector has also seen a breakdown in its relative strength line recently with a collapse in the past month. Conversely, Real Estate has held onto its uptrend with its relative strength line bouncing over the past couple of days.

Consumer Staples, Financials, and Industrials, meanwhile, have been in downtrends over most of the past year. The recent strength of Staples and Industrials have broken those downtrends materially while Financials have failed to break out in the past several days after a big leg higher in the preceding weeks. Utilities similarly has failed to move out of its downtrend.  At that same time, Energy has essentially made a vertical move higher after what was generally a sideways move in the past year.

The last couple of years has certainly seen a strong run for the Energy sector, but taking a longer-term look at performance relative to the broader market it is hard to tell.  In the chart below, we show the relative strength line of the Energy sector versus the S&P 500 starting on 7/1/08, when the ratio of the sector to the S&P 500 hit its all-time high. As shown, there has been secular underperformance from Energy stocks since the Global Financial Crisis which hit its most extreme level during the COVID crash.  Since the lows in the spring of 2020, the Energy sector has rebounded, and the relative strength line is at some of the highest levels in the past couple of years, but there is still a long way to go in order to break the longer-term downtrend. Stay on top of market trends by becoming a Bespoke subscriber today.  Click here to view Bespoke’s premium membership options.

The new year’s first regional manufacturing reading came out of New York this morning. Covering the month of January, today’s Empire Manufacturing report was outright bad at the headline level. While the December reading was at the high end of the post-pandemic and historic range (in the 95th percentile of all months), the January reading was far weaker falling into the bottom quartile of historic readings. At -0.7, it was the first contractionary reading for Empire Manufacturing in eighteen months (since June 2020).  That 32.6 point drop was also the third-largest month-over-month decline on record behind March and April 2020.

Looking under the hood of the report, the massive drop in general business conditions is to a certain extent misleading and there is nuance to the various categories.  Breadth was in fact bad indicating a broad deceleration in activity across categories, but the massive drop in general business conditions was largely due to a massive slowdown in demand.  Like the headline number, both the indices for New Orders and Shipments fell dramatically. Alongside General Business Conditions, only New Orders saw a contractionary reading on that move. Again, other areas of the report did not help the headline index with only Inventories rising month over month. That being said, current levels remain far more elevated for those other categories with many in the upper decile of their historical ranges.

The decline in New Orders points to demand falling for the first time since August 2020. As a result, Unfilled Orders also fell significantly as Inventories rose, but the readings remain much healthier in the 93rd and 95th percentiles, respectively. In other words, even though there wasn’t the same massive inflow of orders as we’ve seen over the past year and a half, there is still plenty of demand left to be fulfilled. Unfortunately, Shipments decelerated sharply and only increased slightly which could be a result of higher COVID case counts holding back production/fulfillment.

One interesting aspect to note for demand and shipments (and this also applies to the headline index) is the huge disconnect between the moves in current conditions and expectations. Expectations indices remain far healthier in comparison to current condition indices, and the drops, if any, were much more modest this month. In fact, in the charts below showing the month-over-month changes of all months on record between the two series, January was certainly an outlier month. A heavy burden from absentees as a result of COVID could be extrapolated as a reason for this disconnect. In other words, New York area firms were hit hard by COVID in January but they do not expect the current wave’s impact to last out through six months.

Even though New York area manufacturers were not seeing growth in the pace of getting products out the door as in past months, working in their favor has been a significant improvement in supply chains. Delivery times remain well above any period prior to the pandemic, but the index fell for the third month in a row.

Another more welcome sign of the report was that Prices Paid and Prices Received have both peaked.  The drop in Prices Received was more significant of the two. On the downside, expectations have continued to rise unabated with each index hitting a record high.

Hiring pulled back in January as did Average Workweek with the weakest readings since last August. Expectations for Number of Employees hit its lowest level since last February. Meanwhile, manufacturers plans for spending on Tech and Cap. Ex. is far more optimistic with January readings in the top 1% of all months on record.  Click here to view Bespoke’s premium membership options.

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 with a 30-day free trial!

Politics

Flush With Cash, California Has Problems That Are No Quick Fix by Christopher Palmeri, Romy Varghese, and Laura Curtis (Bloomberg)

California has a budget surplus of nearly $50bn, California has lots of money to throw at a range of priorities which are steadily mounting, including homelessness and climate vulnerability. But lager problems, like a falling population and drought. [Link; soft paywall]

Women Legislators and Economic Performance by Thushyanthan Baskaran, Sonia R. Bhalotra, Brian K. Min, and Yogesh Uppal (SSRN)

The authors find areas that elect women to state legislative assemblies enjoy higher economic growth, with lower criminality and corruption, higher effectiveness, and lower political opportunism than their male counterparts. [Link]

Scarcity

A Simple Plan to Solve All of America’s Problems by Derek Thompson (The Atlantic)

Many of the economic problems of the last two years can be traced back to a failure to create abundance, which is easily attainable given American technology and productivity, but has not been the focus of policymaking or investment. [Link; soft paywall]

Supply-Chain Issues Leave New Homes Without Garage Doors and Gutters by Nicole Friedman (WSJ)

The ever-rising number of uncompleted homes is being driven by bottlenecks for a relatively small and inexpensive number of components which are preventing final completions of mostly-constructed new units. [Link; paywall]

COVID

Coronavirus Can Persist for Months After Traversing Body by Jason Gale (Bloomberg)

A new study reviewing autopsy results for 44 patients who died after contracting the virus reveals how serious infections can let the virus in to every one of the body’s organ systems. [Link; auto-playing video, soft paywall]

Cannabis compounds stopped COVID virus from infecting human cells in lab study by Kanoko Matsuyama (Fortune)

A new study shows that two different compounds fund in hemp may prevent COVID from entering in to human cells, making them a potential treatment for the disease. [Link; soft paywall]

Multiple Sclerosis

Longitudinal analysis reveals high prevalence of Epstein-Barr virus associated with multiple sclerosis by Bjornevik et al (Science)

A landmark study of US military personnel identifies the Epstein-Barr virus (which causes mononucleosis) as an extremely likely cause of multiple sclerosis. The study shows a 32-fold increase in risk of developing MS after infection with Esptein-Barr. [Link; paywall]

Trucks

Tesla Cybertruck Is Delayed Again, This Time Indefinitely by Nick Yekikian (Edmunds)

After being announced in 2019, Tesla expected its pickup truck to start deliveries by the end of 2021. But now the company has removed references to 2022 deliveries from its site, and nobody knows when the actual release will come. [Link]

Extreme RVs Grow Bigger, Bolder With Younger Consumers by Hannah Elliott (Bloomberg)

Glamping, meet tramping: adventure-seeking younger car buyers are leaving civilization and buying increasingly large and well-equipped vehicles to do it. [Link; soft paywall]

Fads

These TikTok Stars Made More Money Than Many of America’s Top CEOs by Josephy Pisani and Theo Francis (WSJ)

The highest-paid personalities on Tik Tok earn tens of millions per year, making them much better-paid than most large publicly traded companies. [Link; paywall]

Wordle Is a Love Story by Daniel Victor (NYT)

A once-a-day word guessing game has exploded in popularity, turning an idle side project for a Brooklyn software engineer into an obsession for hundreds of thousands of users. If you’d like to try your luck, you can play the game here. [Link; soft paywall]

Investors are paying millions for virtual land in the metaverse by Chris DiLella and Andrea Day (CNBC)

Real estate in the metaverse is selling for millions as investors eagerly anticipate a gold rush of users into virtual environments. [Link]

Economics

Don’t Extrapolate From This Fake Business Cycle by Dario Perkins (TS Lombard)

An argument that the data on the current economy is totally unique, with convincing arguments as to why the pandemic era is not a good indicator of longer-term economic trends or trajectories. [Link]

Climate Change

The 100th Meridian, Where the Great Plains Begin, May Be Shifting by Kevin Krajick (Columbia Climate Society)

The barrier between the humid, fertile east and the arid, dry west has historically run north-south along the 100th meridian. But desertification and climate change may be starting to shift that divide to the east, changing crop yields and drying out the plains. [Link]

Network Effects

Why Apple’s iMessage Is Winning: Teens Dread the Green Text Bubble by Tim Higgins (WSJ)

Younger mobile users fear being branded with the green bubble, illustrating the extremely strong network effects of the iMessage and broader iOS ecosystem Apple controls. [Link; paywall]

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Have a great weekend!