Bespoke’s Morning Lineup – 5/4/21 – Early Weakness
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“As society becomes more and more complex, cheating will in many ways become progressively easier and easier to do and harder to police or even understand.” – Vitalik Buterin
Equity futures were mixed up until about an hour ago with the DJIA indicated to open higher while the Nasdaq was lower. Shortly before 8 AM Eastern, we saw a leg lower with the Nasdaq leading the way and now down closer to 1%. Oddly enough, while one might expect the weakness, especially in the Nasdaq, to coincide with a tick higher in rates, yields on the 10-year actually dropped below 1.6% as futures moved lower. In the grand scheme of things, this isn’t a major move, but it does mark a continuation of the trend of weaker breadth we have seen in the Nasdaq lately that we discussed in last week’s Bespoke Report.
Read today’s Morning Lineup for a recap of all the major market news and events including the biggest overnight events, some key earnings reports, economic data from around the world, as well as the latest US and international COVID trends including our vaccination trackers (which continue to show a significant deceleration in vaccine uptake), and much more.
Moving from the equity market world to the crypto world, just when the general public was finally becoming familiar and comfortable with bitcoin, ethereum has taken the spotlight. While bitcoin has essentially moved sideways over the last 2+ months, the price of ether has practically doubled. Following the divergent performances, the relative strength of ether versus bitcoin has surged in the last several weeks to the point where ether is actually outperforming bitcoin over the last three years.
Looking at it another way, the ratio of bitcoin to gold has plummetted. Back in September 2019, the ratio of bitcoin to gold peaked out at 61.1. Then around the March 2020 equity market lows, the ratio had shrunk to just under 50. Through yesterday, the ratio has now been cut by two-thirds since March 2020 to 17.5 – the lowest level since the summer of 2018.
Compared to gold, ether’s value has surged. At the start of the year, ether was worth less than a half-ounce of gold. Yesterday, it was worth nearly two ounces of gold! Talk about a rally.
Daily Sector Snapshot — 5/3/21
Restaurants Reopening
As vaccines continue to roll out, case counts drop, and restrictions like capacity requirements are taken off the table, people are returning to bars and restaurants. In the commentary section of today’s ISM Manufacturing report, the highlighted comment from the Food, Beverage, and Tobacco Products industry noted that “Business is picking up as restaurants open.” As shown below, data from OpenTable on the seven-day moving average in the percent change in seated US diners now versus 2019 backs that up. The series showed a steep drop in mid-April that has since recovered. Currently, seated diners are roughly 19% below 2019 levels and are re-approaching the post-pandemic high from April 10th which was just over 2 percentage points above current levels. One caveat with these numbers is that restaurants are increasingly requiring diners to make reservations, so while the number of diners may not be quite as strong as it looks, the trend higher is definitely real.
While the general business environment has improved for food, beverage, restaurants, and other related industries, the stocks of these companies have been a bit mixed as we noted in our earlier B.I.G. Tips report. For example, the Food Products industry has seen a breakout over the past couple of months while the Hotels, Restaurants, & Leisure industry has been trading around the top of its long-term uptrend. Meanwhile, the Food & Staples Retailing and the Beverage industries have been more or less treading water.
In the charts below, we show some interesting charts of the individual S&P 500 stocks within these industries. While the broader industry has been around the top of its uptrend channel, some restaurant stocks such as Darden (DRI), Chipotle Mexican Grill (CMG), and Starbucks (SBUX) have likewise been in mostly steady uptrends over the past year but stalled out more recently while holding support at their 50-DMAs. While the longer-term trends are not the same, other food and beverage-related stocks like Brown-Forman (BF/B) and Conagra Brands (CAG) have also been bouncing off of support around their 50 or 200-DMAs. While more elevated above their moving averages, other stocks that have surged recently, and as a result, have broken out include Hershey (HSY) and Molson Coors (TAP). Meanwhile, PepsiCo (PEP) and Constellation Brands (STZ) are also working towards breakouts of their own; STZ at the moment is the closer of the two in doing so while PEP is looking to complete a rough cup and handle pattern that has developed over the past few months. Click here to view Bespoke’s premium membership options for our best research available.
Pace of Background Checks Slows
The latest update from the FBI on the number of gun background checks in the United States was released earlier and showed the largest month-over-month decline on record. While March saw a record 4.691 million background checks, April saw ‘just’ 3.514 million. That decline of 1.2 million was easily the largest on record surpassing the prior record decline of 875K from ‘way back’ in February of this year. Also worth pointing out is the fact that March’s increase of 1.25 million background checks was the largest increase on record. In other words, the pace of background checks is still at historically high levels. In fact, even though there have been seven other months with a higher number of background checks, none of those higher levels occurred prior to March 2020.
On a y/y basis, background checks are up 20.7% from the same month last April, and that represents a record fourteen straight months that they’ve increased 20%+ on a y/y basis. 20% y/y is strong enough, but once you start compounding at that rate, it really adds up! Not only that, but the average y/y change during those fourteen months has been 38.3%.
On the one hand, background checks are compounding at 20% per year, while at the same time, total checks saw the largest m/m decline on record. With those conflicting signals, investors can’t seem to make up their minds over what to do with the stocks of the pure-play gun makers. The charts below show the performance of Smith and Wesson (SWBI) and Sturm Ruger (RGR) over the last year. Both stocks saw impressive gains last summer during the height of civil unrest, but as the violence subsided, so too did their stocks. After erasing roughly half of their summer gains in the fall of last year, both stocks have essentially been stuck in a trading range for the last eight months. In the case of both stocks, they are currently trading at the same level now as they were last September. Click here to view Bespoke’s premium membership options for our best research available.
Bespoke Market Calendar — May 2021
Please click the image below to view our May 2021 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 research levels.
Chart of the Day: TGIM
B.I.G. Tips – Lay of the Land
Heading into the fifth month of 2021, one thing for sure this year is that it has been a lot calmer than last year. The S&P 500 closed out April in the midst of one of its narrowest short-term trading ranges in months, and it occurred right in the thick of earnings season! Anyone who’s been disappointed with the price action so far this year either has too much cash or is just plain greedy. The 4,200 level has been a short-term area of resistance for the S&P 500, though, and while it’s broken above that level in early trading today, we would wait until the close of trading for confirmation of the breakout.
Every sector is up so far YTD, and they’re all above their 50-DMAs. Ironically, sectors that have lagged like Consumer Staples and Utilities are still both overbought, while Energy, the best performing sector YTD, is barely above its 50-DMA. Along with Technology, which was one of just two sectors down last week, the Energy sector’s timing score ranks as ‘Good’.
Market rallies are always fun if you’re long equities, but with many groups trading at or near 52-week highs, risk/reward isn’t necessarily as attractive. Even in overbought markets, though, there are always opportunities.
In our just-released B.I.G. Tips report, we’ve provided an update to our “Lay of the Land” report which summarizes the performance and chart patterns of every S&P 500 Industry over the last year. For anyone looking for a snapshot of where things stand from a technical perspective heading into the crucial month of May, this report is a must-read. To see the report, sign up for a monthly Bespoke Premium membership now!
Bespoke’s Morning Lineup – 5/3/21 – Same Day, Different Month
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
“Time is the scarcest resource and unless it is managed, nothing else can be managed.” – Peter Drucker
As hard as it may be to believe, your calendar is right; it is May, and 2021 is already a third of the way behind us. If you feel like time has gotten away from you, don’t worry, there are still eight months left. From the market’s perspective, the first trading day of May is looking a lot like the first day of April which looked a lot like March which looked a lot like February. All three starts to those months came with heavy buying as the S&P 500 was up over 1% all three times! Futures aren’t quite that strong this morning, but the S&P 500 is indicated to open higher by half of one percent.
On the economic calendar, the major report of the day is the ISM Manufacturing at 10 AM. Economists are collectively expecting a level of 65.0 versus March’s reading of 64.7 which was the highest level since the early 1980s.
Read today’s Morning Lineup for a recap of all the major market news and events including the biggest overnight events, some key earnings reports, economic data from around the world, as well as the latest US and international COVID trends including our vaccination trackers, and much more.
We highlighted it in this week’s Bespoke Report, but we wanted to show again this morning how strong economic data was in the month of March. In our Matrix of Economic Indicators each month we summarize the y/y change in more than 30 different economic indicators and highlight whether they are showing positive or negative momentum versus their prior month’s y/y reading. We also track the net number of indicators showing positive momentum on a monthly basis over time.
For the month of March, only one of the economic indicators in our Matrix showed negative momentum while the remaining 35 all had positive momentum. While we’ve seen a lot of strength in the number of indicators showing positive momentum coming out of the pandemic, we have never seen anything nearly as strong as March’s net reading of +34. While March was exceptionally strong, the combination of a bounce back from economic weakness in February due to winter storms, tons of stimulus, and easy comps relative to March 2020 makes it unlikely that this degree of positive momentum will be matched again.
Berkshire Hathaway and The Annual Meeting
Over the weekend, Warren Buffett and Charlie Munger sat down for Berkshire Hathaway’s annual shareholder meeting. While the annual discussions are always chock full of insight regarding current issues in financial markets, below we wanted to show how Berkshire Hathaway’s (BRK.A) class A shares have performed leading up to and after these meetings. We use class A shares rather than the more affordable and liquid class B shares due to their more extensive history, but the two typically trade similarly with a correlation coefficient of their daily moves at 0.95.
This year, the stock heads into the annual meeting with a 19.62% year-to-date gain. That ranks as the third-best year since 1994 with the only larger YTD gains heading into the meeting being a 21.52% gain in 2013 and a 50.65% gain in 1998. On average, the first trading day after the meeting (or the day it took place in the case of the years before 2000 when the meeting was held on a Monday; highlighted in gray below) has typically seen the stock move higher with an average gain of 0.3%. Returns through the end of the week that the meeting is held also hold a positive bias with a 40 bps average gain and positive returns 59% of the time.
One month after the meeting, though, more often than not Berkshire has actually traded lower. In fact, outside of 2020, 2017, and 2013, every post-GFC year has seen BRK.A fall one month out with a median decline of 19 bps. Fortunately, those losses are usually recovered by 3 months later, and it has usually closed out the year in the green better than three-quarters of the time. Click here to view Bespoke’s premium membership options for our best research available.
Bespoke Brunch Reads: 5/2/21
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!
Policy Proceeds
A lot of people are spending their third stimulus checks on home improvements by Zlati Meyer (Fast Company)
Spending on broken down appliances and other home improvement projects is a popular way to put money from the most recent round of stimulus payments to work. [Link; paywall]
Automatic Aid for the People? How Jobless Benefits Can Fit the Economy. by Neil Irwin (NYT)
While jobless claims surged as a result of the pandemic and covered expenses for millions of Americans, there were massive gaps in coverage as the system to struggled to deal with the wave of cases; ad hoc approaches to boosting benefits didn’t help as states struggled to implement new benefits. [Link; soft paywall]
Taxes
Biden Targets $41 Billion Tax Break for Rich Real Estate Investors by Emily Cadman (Bloomberg)
The tax provision which allows investors to avoid capital gains when rolling real estate investment from one deal to the next is on the chopping block in Biden administration tax proposals. [Link; soft paywall]
ETFs Stand To Win Big If Biden Raises Capital Gains Taxes, Report Says by Tracey Longo (FA Mag)
ETFs tend not to pass capital gains taxes on to investors, unlike many mutual funds which do so, creating an advantage for the pass-through exchange-traded funds. [Link]
Supply Problems
How blackouts, fires, and a pandemic are driving shortages of pipette tips — and hobbling science by Kate Sheridan (Stat News)
The small, simple plastic devices that facilitate testing and various biological research are in extremely short supply thanks to both disrupted supply chains and exploding demand due to vaccine research. [Link]
Lumber is shockingly expensive. Thanks, Obama. by Ryan Cooper (The Week)
The chaos in lumber markets is a good example of how a huge drop in demand can lead to higher prices than if demand had been preserved in the first place. [Link]
CEOs
I Think I Found Jamie Dimon’s Secret Instagram Account by Ashley Feinberg (Trashberg)
An investigation into whether the CEO of JP Morgan is lurking on social media. The author manages to locate Twitter and Instagram accounts that are most likely where Dimon scrolls the timeline. [Link]
Startup CEO says he was fired for microdosing LSD at work by Sarah McBride (Fortune)
The head of a marketing startup was fired by the board of his business for taking a small amount of LSD prior to a meeting in 2019. [Link]
Covid Treatments
Brazil health regulator rejects Russia’s Sputnik vaccine by Ricardo Brito (CTV News/Reuters)
While reviewing the Sputnik COVID vaccine (based on an adenovirus vector similar to the Johnson & Johnson or AstraZeneca jabs), Brazil’s health regulatory discovered that the vaccine’s designers had neglected to delete some of the adenovirus genetic code, meaning the vaccine is effectively a live virus. [Link]
Pfizer is testing a pill that, if successful, could become first-ever home cure for COVID-19 by Paul Nuki (National Post/Telegraph)
A protease inhibitor that works similar to some HIV medication attacks the virus, reducing the severity of infections as soon as signs emerge that they are present. [Link]
Contrarian Signals
One in Four Shares in $12 Billion Bond ETF Are Now Sold Short by Katherine Greifeld (Bloomberg)
25% of the widely-held bond ETF TLT are sold short as investors bet on higher interest rates amidst large outflows. That’s the highest degree of short interest since 2017. [Link; soft paywall]
Pandemic Shifts
Google Is Saving Over $1 Billion a Year by Working From Home by Mark Bergen (Bloomberg)
Activities like travel and entertainment that are no longer a part of the corporate tool kit are saving Google (and other companies) huge sums. [Link; soft paywall]
Golf Resurgence During Covid Boosts Puma as Nike, Adidas Miss Out by Tim Loh (Bloomberg)
Sports that can be played outdoors and alone have seen a massive increase in popularity thanks to COVID, a boon to sportswear brand Puma and a missed opportunity for larger brands like Nike. [Link; soft paywall]
Silly Season
The counterparty puzzle: the curious case of the Miami jewellery designer, the government’s PPE scandal and the lawyer on its trail… by Jonathan Heaf (GQ)
Public contracts for PPE in the UK led to billions in spending on companies that had little to no experience as vendors, including a Miami-based designer. [Link]
The World Knows Her as ‘Disaster Girl.’ She Just Made $500,000 Off the Meme. by Marie Fazio (NYT)
A UNC student made half a million dollars selling an non-fungible token giving the owner rights to 90% of sales related to a meme that came from a photo of her as a four year old outside a house fire in Mebane, NC. [Link; soft paywall]
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Have a great weekend!