When COVID first started to worry equity markets in early 2000, one of the names investors immediately flocked to was telehealth provider Teladoc (TDOC).  TDOC was the perfect COVID play as it enabled people to continue seeing doctors through digital means at a time when the world was locked down.  TDOC actually performed very well in the normal months leading up to COVID, and shares continued to shoot higher even as the broad market declined in late February and March 2020.  By early August 2020, TDOC was up over 100% since 2/19/20 — the date of the high point for the S&P just prior to the COVID Crash.  After a consolidation period in the fall and early winter 2020, TDOC went on another run from December through February of this year and was up nearly 150% YoY on February 19th of this year.

While TDOC was a beloved stock during the first stages of the COVID pandemic, it has been a serious drag over the last five months.  Since peaking in mid-February, shares are down roughly 50% from their highs.  Notably, as TDOC has been falling this year, traditional health care providers like hospital company HCA and healthcare provider and insurer UnitedHealth (UNH) have been rallying to new highs.  As shown below, the six-month chart patterns for HCA and UNH couldn’t look more different than the chart of TDOC.  Click here to view Bespoke’s premium membership options.

What we find most surprising is that Teladoc (TDOC) is now underperforming both HCA and UNH since 2/19/20 when SPY hit its pre-pandemic high just before COVID began worrying markets.  As shown below, at one point earlier this year, TDOC was outperforming its traditional health care competitors by more than 100 percentage points.  That outperformance has been fully erased over the last five months.  Since 2/19/20, TDOC is now up just 29% versus gains of 45% for HCA and 34% for UNH.

Last year there was a lot of talk about telehealth becoming one of the biggest long-term trends that we’d see accelerate because of COVID.  That trend could certainly continue over the coming years and decades, but TDOC’s recent performance just goes to show you that sometimes the best-laid plans don’t necessarily play out the way investors may expect them to, and past performance is certainly not indicative of future performance over any time frame.

Of course, we should note that going back further over the last five years, TDOC is still significantly outperforming both HCA and UNH.  In fact, TDOC is a 10-bagger over the last five years with a gain of 1,183%, while HCA and UNH have also performed well but are only up 169% and 206%, respectively.

In early March of last year, we highlighted an initial basket of stocks whose businesses aligned with pandemic trends which we aptly named: Stocks for the COVID Economy.  We have periodically checked back in on these stocks since initially debuting the list, and seeing as COVID fears are once again a driver of price action again today, we thought we would check back in on the stocks for the COVID economy.

While the S&P 500 is set to close down roughly 2% on the day, the stocks listed in the table are down an average of just 2 basis points.  A third of the stocks listed are in the green on the day even though the S&P 500’s net advance/decline reading is -437.  Stay-at-home names like Chewy (CHWY), Peloton (PTON), Teladoc (TDOC), and Chegg (CHGG) are all leading the way higher today with gains of more than 2%.  MarineMax (HZO), FedEx (FDX), Regeneron (REGN), DR Horton (DHI), and Campbell Soup (CPB) are all higher on the day as well.  If it were not for its Five9 (FIVN) acquisition announcement, we think Zoom (ZM) would likely also be higher.  Click here to view Bespoke’s premium membership options.

Homebuilder sentiment peaked back in November with the NAHB’s Housing Market index topping out at 90.  In the time since then, it has reversed lower by 10 points to 80 this month with higher prices and various shortages being the main reason reported by the NAHB for the decline.  The drop leaves the index at the lowest level since last August, although it’s still above any pre-pandemic reading.  In short, homebuilders remain historically optimistic but not to the same extent that they were in late 2020.

Playing into that decline in the headline number was a single point drop in Present Sales and a much larger six point decline in Traffic.  The Present Sales index, which has the highest weighting on the headline number at nearly 60%, fell to 86 which ties the pre-pandemic record high from December 1998. The Traffic Index holds the second-largest weight at roughly 27%, and its larger decline was the main driver of the overall drop in sentiment.  This month’s decline was particularly large ranking in the 3rd percentile of all monthly moves.  Although traffic has moved sharply lower, it too remains healthier than any period prior to the pandemic.  One other silver lining is that Future Sales rose 2 points to move back above 80.  While that is far from setting any sort of new high as the index still needs to climb another eight points to reach its record, it does point to some improvement in homebuilder outlook.

Looking across each of the four regions broken up by the report, only the Midwest saw an overall improvement in July whereas each of the others fell by 2 points. Once again, those drops still leave the indices at historically solid levels.

Even though the NAHB’s reading on homebuilder sentiment headed lower once again this month and there is a broader weakness across equities today, the S&P Homebuilders (XHB) has managed to so far hold up at support.  As shown below, XHB tested support at the June low near $69 on the initial drop at this morning’s lows. That will continue to be a level to watch going forward, although it is also in a bit of a no man’s land. XHB currently finds itself smack dab between its 50 and 200-DMAs.

As for any catalysts to change that, hard data on housing starts will be released tomorrow and earnings are certainly another.  As shown in the snapshot of our Earnings Explorer tool below, there are a handful of XHB stocks scheduled to report over the next week, and many others are also scheduled over the next few weeks. For the most part, these stocks have averaged positive reactions to earnings with D.R. Horton (DHI) averaging the strongest stock price reaction of any of those reporting this week.  Click here to view Bespoke’s premium membership options.

While the S&P 500 may still be within a couple of a percent of its record high from a week ago today, the magnitude of the decline in small caps has been much larger.  While it has seen a bit of a bounce intraday, at the open today, the Russell 2000 was down over 10% from its record closing high in mid-March. While the Russell 2000 is one of the worst-performing US indices in recent months, it remains within the range it has been trading in all year.

From a technical perspective, we consider a correction to be any decline of 10% (on a closing basis) from a closing high without a rally of 10% in between.  While the Russell 2000 was down 10% earlier today, if the current levels hold, it won’t quite reach the correction threshold on a closing basis.  In the chart below, we show every correction for the Russell 2000 going back to 1980 and its magnitude in percentage terms.  During this time, the Russell 2000’s average decline during a correction has been 18.2% (median: 15.4%), so with the current decline currently not even at 10%, there’s a decent amount of room between here and average levels.

While we may not be there in terms of the size of the decline, in terms of duration, the current period is already well above average.  The Russell’s closing high was all the way back on March 15th, so even if the decline ended today, it would be 126 calendar days, or more than 50 days longer than the average of 73 days and double the median of 63 days.

In the chart below, we show Russell 2000 corrections in terms of their duration in calendar days.  What’s really interesting to note about the current period is that at 126 days, it already would rank as the 7th longest correction in the Russell’s history.  When it comes to corrections, we always highlight that they can occur in terms of both time and/or price.  For the current period, it has certainly been a combination of the two, but to this point, it has been more centered on time than on price.  Click here to view Bespoke’s premium membership options.

Each of the major indices are down well over 1% with the Dow and small-cap Russell 2,000 down even more having fallen over 2% as of this writing.  Meanwhile, Treasury yields are falling and at multi-month lows.  The main reason being attributed to the risk-off move today is jitters over the rising prevalence of the Delta variant.  To give some evidence to this being the catalyst, in the chart below we show the relationship between individual S&P 500 stocks’ performance today and back during the COVID crash from February 19th to March 23rd of last year.  As shown, there is a general correlation that exists between the performance of the two periods.  Some of the best performers today were also some of the best performers during the crash and vice versa. For example, Consumer Staples was the sector that held up the best during the COVID Crash last year with the average stock in the sector falling 24.04% versus an average decline of 38.7% for the entirety of the S&P 500. Today, several of the sector’s names are the top performers on the day as the average stock in the sector is only down 19 bps versus an average decline of nearly 2% for all S&P 500 stocks.  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.

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Labor Markets

The CFO Survey: Data & Results – Q2 2021 (Richmond Fed)

While CFOs reported a huge uptick in concern over labor quality and availability, optimism over their specific company’s prospects hit the second-highest level ever and general confidence about the trajectory of the US economy was improved as well. [Link]

McDonald’s Owners Offer Tuition, Child Care to Lure Burger Flippers by Heather Haddon (WSJ)

Franchisees are expanding their benefit packages in order to hire workers, with higher wages, paid time off, and tuition coverage also being offered in order to attract workers amidst and extremely tight labor market for restaurant workers. [Link; paywall]

Environment

A “wobble” in the moon’s orbit may lead to record floods on Earth by Sophie Lewis (MSN)

In addition to rising seas thanks to higher temperatures, flooding will worsen over the next couple of decades as a wobble in the moon’s orbit drives unusually high tides that may overwhelm costs even without a storm surge or higher sea level. [Link]

People dumped their pets into lakes, officials say. Now football-size goldfish are taking over. by Reis Thebault (WaPo)

While goldfish in bowls tend to be pretty small, when released into the environment they can grow to impressively large sizes while also badly disrupting the ecosystems they’re released in to. [Link; soft paywall]

Have you ever wondered why we don’t find fossils in the Appalachian mountains? The truth is, we do, they’re just not the kind of fossils you might think of—there are no mammals, no dinosaurs, no reptiles. There’s something else entirely. by Alex (ThreadReader)

A fascinating read on the absolutely ancient Appalachians, which were produced through multiple continental collisions and are part of the same mountain range that covered northern Britain and Scandinavian. [Link]

Tight Supply

Here’s Who Will Be Left Behind in the Housing Boom by Ali Wolf (NYT)

With out-of-town buyers that have much higher incomes than locals fueling the housing boom since COVID hit, current residents are unable to compete. The result is a huge shift in the housing market. [Link; soft paywall]

Build-to-Order Gains Momentum at Long Last by Steve Finlay (Wards Auto)

Traditionally, automakers have built inventory for consumers to purchase on the spot. But tight inventories and the success of non-dealer models like Tesla have led to shifts in the traditional approach. [Link]

Infrastructure

China Buys Friends With Ports and Roads. Now the U.S. Is Trying to Compete. by Stu Woo and Daniel Michaels (WSJ)

In response to China’s soft power “Belt & Road” initiative, the US is ramping up investments in various types of infrastructure around the world as a way to counter the Chinese effort to win friends with cheap loans and direct investment in ports, communications, and railways. [Link; paywall]

Investing

Treasury Wants Large Holders of 2020 Note to Identify Themselves by Liz McCormick (Bloomberg)

A 2020 ten year note issue may have had extreme concentration, leading the Treasury to demand large holders to identify themselves, part of its regular efforts to ensure nobody corners the market in a given bond. [Link; soft paywall]

Robinhood, Others Upend Rules for Early IPO Trading by Corrie Driebusch (WSJ)

Rather than being forced to hold for the traditional six months, early investors in Robinhood will be able to sell 15% of their holdings immediately and 15% three months later with full restrictions lifted after six months as is typical. [Link; paywall]

Wall Street Has Surrendered to the $500 Billion ETF Rush by Claire Ballentine and Francesca Maglione (Bloomberg)

We’re only a couple of days in to the second half, but ETFs are on track to break the $497bn record inflows ETFs recorded in 2020; that means the full annual flow total is likely to be substantially higher. [Link; soft paywall]

Overdoses

US overdose deaths hit record 93K in pandemic last year, a 29% increase (Associated Press/NYP)

Exploding prevalence of fentanyl and policy responses to the pandemic drove a huge increase in overdoses last year. [Link; auto-playing video]

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Have a great weekend!